Real Estate Investment Trusts (REITs) Offer High Yields

A real estate investment trust (REIT) owns and manages a basket of properties from which it generates lots of cash. REITs own commercial (office, industrial and retail) and residential properties in all parts of the United States. Many REITs own land that is available for future development.

By law a REIT must distribute its excess cash to shareholders. The yield often exceeds five percent. Therefore, a well-managed REIT is an excellent candidate for a dividend reinvestment portfolio. But beware of high dividend yields caused by falling prices.

The following table lists ten well-known REITs with solid cash distributions. As the price of the stock goes up, the yield falls. So to get the highest yield, buy the stock when it is at a low price.

Before you buy any of these stocks, check their price chart patterns. And check to confirm that their cash distributions are sustainable, particularly if the distribution yield is very high.

Owning REITs Using Exchange Traded Funds

Another convenient way to own REITs is to buy an exchange traded funds (ETF) that specializes in REITs. Four REIT ETFs are:

• iShares Dow Jones U.S. Real Estate Index (IYR)
• iShares Cohen & Steers Realty Majors Index (ICF)
• StreetTracks Series Trust Wilshire REIT Index (RWR)
• Vanguard REIT Index VIPERs (VNQ)

Each ETF owns a diversified portfolio of the largest REITs in the United States and pays quarterly cash distributions. The yields are typically two percent to four percent, which are lower than yields of many of the individual REITs.

Related Articles:

Multifamily REITs Pay High-Yield Cash Distributions
Regional Mall and Shopping Center REITs Offer High Yields

Updated April 8, 2008.

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