Why REIT Dividends are a Game Changer for Investors
Key Points
REITs benefit from a unique tax structure, including paying zero corporate tax.
To qualify, REITs must pay out 90% or more of their taxable income to shareholders as dividends.
This equates to higher-than-average dividend returns while providing diversification into real estate.
Dividends can be an incredible way to create passive income by investing in the stock market. While many investors focus on traditional dividend stocks, real estate investment trusts, commonly referred to as REITs, can be an excellent source for reliable dividends because of their unique structure. If you’re looking for ways to diversify your portfolio into real estate or possibly grow your dividend income, here’s why REIT dividends are a game-changer for investors. What makes REIT dividends so special
REITs have strict requirements to follow to benefit from some of the tax advantages of this classification, such as paying zero corporate tax. Specifically, REITs avoid double taxation on earnings, unlike standard non-REIT corporations, by not requiring to pay income taxes at the corporate level. Instead, taxes are only paid at the shareholder level on dividends received.
Some of the requirements for REITs include having at minimum 75% of its assets in real estate or real estate-related securities, such as mortgages or real property. REITs also must earn at least three-fourths of their income from real estate through things like rental income or mortgage income. But most importantly, REITs are required to pay at least 90% of their taxable income to shareholders in the form of a dividend.
Because of this requirement, investors often benefit from higher-than-average dividend returns by investing in a REIT. Image source: Getty Images. Big savings allows for game-changing dividends To show you why this is game-changing, here’s a hypothetical example. If a REIT earns a taxable profit of $20 million, it must distribute at […]
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