REIT Investing for Dividends: Higher Yields, Different Rules

REITs (Real Estate Investment Trusts) deserve their own discussion because they play by different rules—and those rules can work in your favor.

Why REITs often yield more:

By law, REITs must distribute at least 90% of taxable income as dividends. This structural requirement means yields of 4-7% are common, sometimes higher.

Types of REITs for dividend investors:

• Residential (apartments, single-family rentals) – stable, everyone needs housing

• Industrial (warehouses, logistics) – e-commerce tailwind

• Healthcare (senior housing, medical offices) – demographic trends

• Retail (malls, shopping centers) – more volatile, higher yields

• Data centers – growth + income combo

• Net lease (triple-net properties) – predictable, bond-like income

What I watch for:

• FFO (Funds From Operations) – the REIT equivalent of earnings

• FFO payout ratio – sustainable under 80-85%

• Occupancy rates – higher is better, obviously

• Debt levels – REITs use leverage; too much is risky when rates rise

• Dividend growth history – Realty Income has raised for 25+ years

Tax consideration:

Most REIT dividends are taxed as ordinary income, not qualified dividends. Consider holding REITs in tax-advantaged accounts (IRA, 401k) when possible.

My REIT allocation: About 10% of portfolio, split between O, VICI, and a diversified REIT ETF.

Anyone overweight or underweight REITs? What's your approach?