A real estate investment trust (REIT) is an investment vehicle focused on income-producing property. REITs can provide passive income while adding real-estate exposure to an income portfolio. section 5.1 section 5.5
REITs are presented as a practical alternative to directly owning property:
- They must distribute at least 90% of taxable income as dividends, which can produce relatively high yields. section 5.1
- Public trading provides liquidity, while professional management removes the need to manage property acquisition, development, or leasing directly. section 5.1
- They give smaller investors access to property exposure and can diversify portfolios containing equities and bonds. section 5.1 section 1.3.4
Using REITs in an income portfolio
An investor seeking regular cash flow could place REITs alongside dividend-paying stocks and bonds. The choice should match the investor’s risk profile, return goals, and time investment rather than rely on yield alone. Dividend yield, annual payment, payout ratio, and dividend growth rate provide comparison points for analysis. section 5.5 section 1.3.4
Table 1.1 Comparing growth, value, and income investing
|
Attribute
|
Growth investing
|
Value investing
|
Income investing
|
|---|---|---|---|
|
Primary goal
|
Capital appreciation
|
Capital appreciation
|
Regular income
|
|
Investor focus
|
Future potential, innovation
|
Undervalued “bargains”
|
Consistent cash payouts
|
|
Typical company
|
Young, innovative, rapidly expanding
|
Mature, stable, temporarily unpopular
|
Established, predictable, high cash flow
|
|
Dividends
|
Low or none (profits are reinvested)
|
Often pays dividends
|
High and stable dividends key
|
|
Key metrics
|
High revenue growth, High P/E
|
Low P/E, Low P/B*
|
High dividend yield, stable cash flow
|
|
Risk profile
|
High
|
Low to moderate
|
Low
|
|
Time horizon
|
Long-term
|
Medium to long term
|
Any, but often for immediate needs
|
|
* P/E = price-to-earnings; P/B = price-to-booking.
|
Compare income investing with growth and value strategies by goal, metrics, risk profile, and time horizon. section 1.3.4
