Is Investing In REITs A Viable Strategy For Dividend Income?

Investors in search of higher yields often turn to Real Estate Investment Trusts, or REITs, in order to secure a higher level of income. These stocks tend to offer generous dividend yields which make them appealing to income investors.

There are more than 160 publicly-traded REITs and you can download your free REIT list (along with metrics like security price, dividend yield, and market capitalization) by clicking on the link below:

This article will explore why REITs are a viable strategy for growing dividend income.

What are Real Estate Investment Trusts?

Real Estate Investment Trusts, or REITs as they are commonly known, are corporations that own real estate properties. These types of investments came into existence 60 years ago when President Eisenhower signed the Cigar Excise Tax Extension of 1960. This gave ordinary investors the ability to make investments in income-producing real estate.

These properties include office space, retail outlets, medical office buildings, apartments, hotels, storage facilities, and buildings used for technological purposes. Properties are then leased to customers in a variety of areas including the retail, health care, leisure and technology sectors.

There are two types of REITs: equity REITs, those corporations that invest in land, buildings and equipment, and mortgage REITs, which invest in mortgages. Equity REITs are the more common type and likely the less risky of the two investment options.

Mortgage REITs make income from the interest on the mortgages that they own. When those loans begin to default, like they did in the 2007-2009 recession, mortgage REITs tend to perform poorly. They often have to cut their dividends due to the lack of income from the mortgages that they own. We believe the average investor should avoid the potential pitfalls of mortgage REITs and stick with equity REITs.

REITs Are Better to Own Than Physical Estate And Are Designed to Deliver Income

Fortunately, there are many equity (or eREITs) to choose from and they all pay dividends. Some even have a dividend growth streak of more than 50 years that enables them to qualify as a Dividend King. or at least 25 years to qualify as a Dividend Aristocrat. Some REITs also pay a monthly dividend.

Owning shares of an equity REIT allows the average investor some distinct advantages compared to owning real estate itself. The average investor can gain access to the real estate asset class through REITs without having to acquire the knowledge of how to be a landlord and all that it entails. They also don’t have to find the necessary funding to purchase real estate properties.

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Disclosure: Sure Dividend is published as an information service. It includes opinions as to buying, selling and holding various stocks and other securities.

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