Real Estate Investment Trusts (REITs)

Overview

REITs allow investors to gain exposure to real estate without buying physical property. They trade like stocks, offer dividend income, and provide portfolio diversification through commercial, residential, and specialty properties. Because REITs must distribute at least 90% of taxable income, they are popular among dividend-focused investors seeking regular cash flow. Their performance often moves inversely with bond yields, so tracking the yield curve can help you time entries. Compare REITs with other tangible holdings like farmland and timber to build a well-rounded alternatives sleeve in your portfolio.

Key Takeaways

• REITs must distribute at least 90% of taxable income as dividends
• Publicly traded REITs offer daily liquidity on major exchanges
• Sector diversification includes office, retail, healthcare, data centres, and more
• REIT dividends are typically taxed as ordinary income, not qualified dividends

Practical Tips

• Compare REIT yields to ten-year Treasury rates for relative value
• Look at funds from operations (FFO) instead of P/E for REIT valuation
• Diversify across REIT sectors to reduce concentration risk