🎥 Watch: the forced dividend
Why REITs and BDCs are legally required to pay out — and what it means for dividend investors (video in German):
1 · What a REIT is — and the 90% rule
A REIT (Real Estate Investment Trust) bundles real estate or property loans into a listed stock. You don't buy a brick, you buy a share of the rental cashflow. The deal with the tax authority: the REIT pays almost no corporate tax — provided it distributes at least 90% of its taxable income as dividends. Pay out less, and tax plus an excise penalty apply. In practice many REITs go close to 100%.
2 · The REIT sectors
"REIT" isn't a sector — it's a wrapper. The property underneath decides the risk:
- Net-lease / retail — long leases, tenant pays the costs. Very predictable.
- Industrial & logistics — warehouses, distribution centers; driven by e-commerce.
- Data centers & towers — infrastructure for cloud, AI and mobile.
- Residential — rental housing, defensive, demographics-driven.
- Healthcare real estate — hospitals, senior care, medical offices; a long demographic bet.
- Mortgage REITs (mREITs) — invest in property loans rather than buildings; higher yield, higher rate risk.
3 · Well-known REITs for orientation
Not a recommendation — just to put names to the sectors:
- Realty Income — net-lease, pays monthly, S&P 500 Dividend Aristocrat ("The Monthly Dividend Company").
- Prologis — the world's largest logistics REIT.
- Digital Realty / American Tower — data centers and cell towers as digital infrastructure.
- Medical Properties Trust (MPW) — hospital real estate; a case study that REITs can cut dividends too.
Single-name analyses are in the blog.
4 · REIT ETFs
If you'd rather avoid single-stock risk, take a REIT ETF and spread across all sectors. Broad US/global REIT indices are the best-known. For EU investors: choose an EU-tradable UCITS REIT ETF (e.g. tracking an FTSE EPRA/NAREIT index) — US-domiciled REIT ETFs are usually not orderable under EU rules.
5 · The honest catch
- Rates: REITs are the most rate-sensitive hard asset. Rising rates = costlier financing + lower valuation.
- Leverage: real estate runs on debt. Watch the debt level and maturities.
- Dividend-cut risk: if AFFO is too thin, the payout is cut (see MPW). Forced distribution doesn't mean cut-proof.
- Tax: foreign REIT dividends can have withholding-tax issues — check first.
6 · How REITs fit a portfolio
For me REITs are the real-estate cashflow block next to shipping, mining and energy — a different cashflow source with its own cycle. They deliver predictable income but they are not a rate hedge: in rate spikes they suffer. I weight them as an income anchor, not a growth engine, and watch AFFO coverage strictly rather than the headline yield.
7 · FAQ
What is a REIT?
A listed company investing in real estate or property loans that must distribute ≥ 90% of taxable income. You get real-estate cashflow as a stock, without buying and managing property yourself.
Why must REITs pay dividends?
The distribution is tied to the tax exemption: ≥ 90% of taxable income out, or tax + excise penalty. That's why REITs are reliable payers, many near 100%.
What REIT sectors are there?
Net-lease/retail, industrial/logistics, residential, data centers/towers, healthcare real estate and mortgage REITs. Each has its own drivers and risks.
Are REITs a good inflation hedge?
Partly — many leases are inflation-linked. But REITs are rate-sensitive: rising rates hurt valuations. An inflation hedge with a rate caveat.
What is the biggest risk with REITs?
Rates and leverage — plus cut risk on thin AFFO coverage. Look at Funds From Operations rather than accounting earnings.