Boost your real estate investment income with dividend yield
Real estate investing can provide a steady stream of income through rental payments and property appreciation over time. However, some investors are looking to boost their income even further through dividend-paying real estate investment trusts, or REITs. Adding REITs to an investment portfolio is an effective way to increase dividend income.
What is dividend yield?
Dividend yield refers to the annual dividend payments from a stock or REIT expressed as a percentage of the current share price. For example, if a REIT pays $1 per share in dividends over the year and its share price is $25, the dividend yield is 4% ($1 dividend ÷ $25 share price). The higher the dividend yield, the more income you’ll receive relative to the share price.
Advantages of REIT dividends
REITs are required to pay out at least 90% of taxable income to shareholders in dividends. This results in yields that are typically much higher than dividends from stocks. Here are some key benefits of REIT dividend income:
- High yields – Average REIT yields range from 2-12%, which can significantly boost portfolio income.
- Reliable payouts – REITs consistently pay dividends and often increase payouts over time.
- Diversification – Adding REITs can balance a portfolio heavily weighted in stocks and bonds.
- Low volatility – REIT share prices are generally less volatile than stocks.
- Inflation hedge – REIT dividends tend to rise during inflationary periods as rents and property values increase.
Additional reading: Is rental yield the only thing property investors should focus on?
How to pick high-dividend yield REITs
Not all REITs are created equal when it comes to dividends. Look for REITs that exhibit the following characteristics:
- Track record of consistent dividend payments
- Focused on stable property sectors like apartments, offices, warehouses
- Debt levels appropriate for its portfolio and growth prospects
- Growth in funds from operations (FFO) to support increasing dividends
- High occupancy and tenant retention rates
- Reasonable payout ratio (percentage of FFO paid as dividends)
Diversify your REIT investments
Since different property types have unique market cycles, it’s important to diversify your REIT portfolio holdings. Consider owning REITs across sectors like:
- Residential – apartments, manufactured housing, student housing
- Retail – malls, shopping centres, net lease properties
- Industrial – warehouses, distribution centres, storage units
- Office – city offices, medical offices, data centres
- Speciality – cell towers, hotels, casinos, billboards
A well-rounded selection of REITs across property niches will help provide stable income through varying market conditions.
Boost returns with dividend reinvestment
Many REITs offer dividend reinvestment plans (DRIPs) which allow investors to use dividends to automatically buy additional shares. This compounds earnings over time by putting dividends back to work instead of paying them out in cash. DRIP plans provide a low-cost way to build REIT positions and take advantage of the power of compounding.
Adding high-yield REITs to an investment portfolio is a smart way to generate a growing income stream. Focus on REITs with strong fundamentals and diversify across property sectors to balance cash flow and risk. Turn on dividend reinvestment so your payouts keep working harder for you. With the right REITs, dividends can give your real estate returns a healthy boost.
