We believe that investing in dividend yield REITs is a great way to earn outsized returns. Why dividend REITs when so many gurus are buying growth, large-cap or tech stocks?
The reason is that REITs produce more consistent returns with limited downside risk, so investing them would yield better performance and gives you better sleep at night. But, why exactly do these REITs produce better returns? Let us walk you through the philosophy of investing in REITs. We'll also highlight a strategy that's proven particularly potent for small investors like you.
Why Investing In REITs?
There are so many different types of sectors available, and there are so many different approaches in investing (growth investing, value investing, dividend investing, sentiment investing ...), but focusing on the dividends is the simplest way. A good dividend stock is a company that pays a consistent dividend over time. A company that does well is likely to share the profits in the form of dividends with the shareholders. Even better, investors might potentially enjoy dividend growth in the long run.
The dividend yield is the company's dividends per share, divided by its latest share price. This number is continually changing as the price changes, which gives the investors an idea how much you getting in terms of dividends at the current price.
REITs, one of the popular sectors, have a unique business model that invests in real estates, manage the assets and collect rentals from the tenants. Based on the regulation, REITs are required to pay out at least 90% of its distributable income to enjoy tax benefits. Logically, this makes REITs, one of the best dividend machines in investing.
Is Dividend Stock Better Than Others
There have been various studies showed that dividend investing is likely to outperform the market in the long run. The research done by J. P. Morgan showed that dividend stocks also outperformed those stocks that do not pay dividends.
In the chart above, we see that if one had invested $1,000 for 25 years in high dividend yield and low payout ratio stocks, he would have enjoyed a 2500% total returns! That is 25 times the amount of money you could have returned!