REIT Dividend
A REIT dividend is a regular payment made by a Real Estate Investment Trust (REIT) to its shareholders, representing a share of the income generated from its real estate investments.
Key Takeaways
- REIT dividends are regular payments from Real Estate Investment Trusts to shareholders, representing income from real estate.
- REITs must distribute at least 90% of their taxable income as dividends to maintain their special tax status.
- These dividends offer investors a way to earn passive income from real estate without direct property ownership.
- Unlike many stock dividends, REIT dividends are often taxed as ordinary income, not qualified dividends.
What is a REIT Dividend?
A REIT dividend is a distribution of income from a Real Estate Investment Trust (REIT) to its investors. This builds on the concept of a dividend by focusing specifically on payouts from companies that own, operate, or finance income-producing real estate. Unlike many traditional company dividends, REITs are legally required to distribute at least 90% of their taxable income to shareholders annually. This allows the REIT itself to avoid corporate income tax, making it a pass-through entity.
Why REIT Dividends Are Unique
The primary differentiator for a REIT dividend is this mandatory distribution rule. This means REITs typically offer higher distribution yields compared to many other types of stocks, making them attractive for investors seeking regular passive income. However, it also means REITs retain less capital for growth, often relying on external financing for expansion.
Real-World Example
Imagine you own 100 shares of a publicly traded Equity REIT that specializes in apartment complexes. This REIT generates rental income from its properties. If the REIT's annual taxable income is $10 million, it must distribute at least $9 million (90%) to its shareholders as dividends. If there are 10 million shares outstanding, each share would receive a dividend of at least $0.90 per year. As a shareholder, you would receive $90 (100 shares x $0.90) in annual dividend payments, typically paid out quarterly.
Frequently Asked Questions
Why do REITs pay dividends?
REITs pay dividends to maintain their special tax status. By distributing at least 90% of their taxable income to shareholders, REITs avoid paying corporate income tax, allowing more of their earnings to flow directly to investors.
Are REIT dividends taxed differently than other stock dividends?
Yes, often. Most REIT dividends are typically taxed as ordinary income at your regular income tax rate, rather than at the lower qualified dividend rates that apply to many other stock dividends. This is an important consideration for investors.
How often do REITs typically pay dividends?
Most REITs pay dividends on a quarterly basis, similar to many other publicly traded companies. However, some may pay monthly or semi-annually, so it's always best to check the specific REIT's distribution schedule.