Income-Oriented Investors Should Consider REITs With Consistent Track Record of Dividend Payments

REITs are a favored investment for income-oriented investors due to the high dividend payments they provide shareholders. In order to maintain REIT status, REITs must pay 90% of net income to shareholders as dividends each year. However, a REIT will often record several large non-cash items in its net income like depreciation that make the required dividend payment significantly lower than the actual cashflow the company receives. Therefore, income-oriented investors should pick a REIT that pays a high dividend beyond the required minimum. Unfortunately, choosing an appropriate REIT investment is more difficult than just choosing the REIT with the highest dividend yield. A high dividend yield could be a sign that a management team is dedicated to paying a high dividend as a percent of total cashflow to shareholders. However, a company will see an increase to its dividend yield when the stock price falls. If the company's stock price is falling because the outlook for cashflow growth is lower or potentially negative, then the company may not be able to support the current dividend payment and a high dividend yield might be a sign that a dividend cut is looming for the company.