Why do reits pay high dividends

REITs are especially different from ordinary stocks when it comes to dividends. Not only do REITs tend to pay above-average dividends, but they also have several unique tax implications. Most REITs pay dividend yields that are significantly higher than average. Consider this chart of the dividend yields paid by some of the largest publicly traded REITs. Source: CNBC. The average mortgage REIT which owns mortgage-backed securities and related assets pays around Annaly is a mortgage REIT.

Equity REITs produce a combination of stock price appreciation and income. Commercial properties generate rental income -- but they also tend to increase in value over time. On the other hand, mortgage-backed securities are purchased only for income. Mortgage REITs deliver the maximum amount of income within certain risk parameters.

They have little or no regard for the appreciation potential of their assets. Companies can write off real estate investments for tax purposes over a number of years. This results in an annual deduction called depreciation. Funds from operations , or FFO, is a better metric to look at. The downside to REITs avoiding tax on the corporate level is that their dividends have a complicated and disadvantageous tax structure on the individual level. The REIT paid a large special dividend in but has increased its normal quarterly dividend every year since While funds from operations have been somewhat volatile, the Trust has grown FFO by Going forward, we conservatively estimate they can continue growing FFO by 5.

The trust will continue acquiring skilled nursing and senior care retirement homes to lease and build their real estate portfolio. In addition, when combined with the 5. Its portfolio consists of 71 net leased retail and office properties located in 49 markets in 22 states. It was formed as recently as August of , has no employees, and is externally managed by Alpine Income Property Manager. Interest coverage ratio is low, at 1.

A large portion of rental income comes from solid tenants. As Alpine Income Property Trust was formed in , it does not have a historical track record. However, its financials have been growing at a very rapid pace quarter after quarter. Moreover, we expect annual growth of FFO per share of 7. We expect total annual returns of Its focus is in skilled nursing and assisted living facilities, and its portfolio is primarily triple-net leases operated by healthcare providers. Omega has the majority of its properties in the United States but has a small presence in the United Kingdom as well.

Omega reported second-quarter earnings on August 2nd, and results were much better than expected, with records for both the top and bottom lines. Funds from operations FFO per share was 85 cents, besting estimates by two cents. Still, that potential for growth carries risks that vary depending on the type of REIT. Want to see best performing REIT stocks and funds? Jump to our list below.

Congress created real estate investment trusts in as a way for individual investors to own equity stakes in large-scale real estate companies, just as they could own stakes in other businesses. This move made it easy for investors to buy and trade a diversified real-estate portfolio.

This is a big draw for investor interest in REITs. Have a minimum of shareholders after the first year of existence. This means that over time, REITs can grow bigger and pay out even larger dividends. They own the underlying real estate, provide upkeep of and reinvest in the property and collect rent checks — all the management tasks you associate with owning a property. Instead, they own debt securities backed by the property. For example, when a family takes out a mortgage on a house, this type of REIT might buy that mortgage from the original lender and collect the monthly payments over time.

Meanwhile, someone else — the family, in this example — owns and operates the property. These businesses own and operate real estate properties as well as own commercial property mortgages in their portfolio.

Be sure to read the REIT prospectus to understand its primary focus. Real estate vs. Publicly traded REITs tend to have better governance standards and be more transparent. For these reasons, many investors buy and sell only publicly traded REITs. Instead, they can be purchased from a broker that participates in public non-traded offerings, such as online real estate broker Fundrise. Nareit maintains an online database where investors can search for REITs by listing status.

Non-traded REITs also can be hard to value. A REIT is a company that owns and typically operates income-producing real estate or related assets. These may include office buildings, shopping malls, apartments, hotels, resorts, self-storage facilities, warehouses, and mortgages or loans. Unlike other real estate companies, a REIT does not develop real estate properties to resell them.

Instead, a REIT buys and develops properties primarily to operate them as part of its own investment portfolio. REITs provide a way for individual investors to earn a share of the income produced through commercial real estate ownership — without actually having to go out and buy commercial real estate. These are known as publicly traded REITs. Others may be registered with the SEC but are not publicly traded.

This is one of the most important distinctions among the various kinds of REITs. Before investing in a REIT, you should understand whether or not it is publicly traded, and how this could affect the benefits and risks to you.

Additionally, some REITs may offer higher dividend yields than some other investments. But there are some risks, especially with non-exchange traded REITs. Because they do not trade on a stock exchange, non-traded REITs involve special risks:.