REITs offer investors the benefits of commercial real estate investment along with the advantages of investing in a publicly traded stock. The investment characteristics of income-producing real estate has provided REIT investors with historically competitive long-term rates of return that complement the returns from other stocks and from bonds.
REITs are required to distribute at least 90 percent of their taxable income to shareholders annually in the form of dividends. Significantly higher on average than other equities, the industry's dividend yields historically have produced a steady stream of income through a variety of market conditions.
In addition to the historical investment performance and portfolio diversification benefits available from investing in REITs , REITs offer several advantages typically not found in companies across other industries. These benefits are part of the reason that REITs have become increasingly popular with investors over the past several decades.
REITs' reliable income is derived from rents paid to the owners of commercial properties whose tenants often sign leases for long periods of time, or from interest payments from the financing of those properties.
Most REITs operate along a straightforward and easily understandable business model: By leasing space and collecting rent on its real estate, the company generates income which is then paid out to shareholders in the form of dividends. When reporting financial results, REITs, like other public companies, must report earnings per share based on net income as defined by generally accepted accounting principles (GAAP).
In short, REITs over time have demonstrated a historical track record providing a high level of current income combined with long-term share price appreciation, inflation protection, and prudent diversification for investors across the age and investment style spectrums.