Real Estate Investment Trusts (REITs) are some of the best investment opportunities in the stock market for growth and income. REITs generally offer dividends yields that are higher than the typical S&P stock, and many of them raise the dividend payout on an annual basis.
The mix of a high initial yield, and growth in the dividend over time, makes these companies an attractive option for investors looking to produce income from their portfolios.
This article will give a background of the Real Estate Sector, provide information about the best type of accounts to hold REITs in, and offer a watch list of my favorite dividend growth stocks in the sector.
What Is A REIT?
Simply put, a Real Estate Investment Trust (REIT) is a company that owns or finances income-producing real estate.
This real estate can come from a variety of business types, including: Commercial, Industrial, Single-Family Homes, Apartments, Hotels, Self-storage Units, Data Centers, Nursing Homes, Health Care Facilities, Student Housing, Telecommunications Towers, Timberland, Warehouses, Farmland, Office Buildings, Infrastructure, etc.
- Invest at least 75 percent of its total assets in real estate
- Derive at least 75 percent of its gross income from rents from real property, interest on mortgages financing real property or from sales of real estate
- Pay at least 90 percent of its taxable income in the form of shareholder dividends each year
- Be an entity that is taxable as a corporation
- Be managed by a board of directors or trustees
- Have a minimum of 100 shareholders
- Have no more than 50 percent of its shares held by five or fewer individuals
The REIT structure is special in that it allows regular investors the chance to invest in real estate without the hassle of becoming a landlord to do so.
This structure was established by an act of Congress and signed into law by President Dwight D. Eisenhower in 1960.
Here is a PDF of the statute, with the relevant “Part II – Real Estate Investment Trusts” beginning at the bottom of Page 6.
More information to come…
Here is a link to the two articles I’ve published on Seeking Alpha covering the REIT sector.
June 26, 2017
July 9, 2015