An article on Yahoo mentioned two REIT’s with high dividends. What is the significance? Both REIT’s rent to the US government, making them stable sources of income.
Let’s back up a step. What is a REIT? Investopedia defines a REIT as:
- A real estate investment trust (REIT) is a company that owns, operates, or finances income-producing properties.
- REITs generate a steady income stream for investors but offer little in the way of capital appreciation.
- Most REITs are publicly traded like stocks, which makes them highly liquid (unlike physical real estate investments).
- REITs invest in most real estate property types, including apartment buildings, cell towers, data centers, hotels, medical facilities, offices, retail centers, and warehouses.
Note: smilingdad invested in both of these REIT’s below. As always, this is not investment advice. See if there is a place for REIT’s in your portfolio and for retirement income.
The two REIT’s in question were Easterly Government Properties (symbol: DEA) and Office Properties Income Trust (symbol: OPI). At the end of 2022, DEA had a dividend yield of 7.8% and OPI had a dividend yield of 16.4%. Since the beginning of the year, the yields have dropped to 7.11% and 14.33% as both REIT’s have risen in price.
What’s a dividend and how is a dividend yield calculated?
From Investopedia, “By law, 90% of an REIT’s profits must be distributed as dividends to shareholders.” A dividend is a distribution from a company to those owning a company. The most common are cash dividends, when the company gives back cash to shareholders. A dividend yield takes the dividends paid over the past year and divides it by the REIT share price.
For DEA, the annual dividend is $1.06 per share. The current price is $14.90. That gives us the dividend yield of 7.11%.
For OPI, the annual dividend is $2.20 per share. The current price is $15.35. The result is a 14.33% dividend yield.
Risks with high dividend yields
If the dividend is too high compared to earnings, it may be unsustainable and lead to future cuts. Here, we show the stability of the dividend over the last three years.
Take your time, understand the risks of these and all other investments, before deciding to buy. One thing I do if I have interest in owning something is I buy a few shares, between 1 to 10. This naturally makes me want to understand my investment better and do more research. If I like what I see, I’ll buy more.
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