Have you ever dreamed of investing in a theme park, apartment complex or hospital? A real estate investment trust (REIT) diversified stock can allow you to invest in multimillion-dollar ventures for less than $40 per share. REIT diversified stocks give you a higher level of protection by exposing you to multiple real estate markets or ventures with a single purchase.
Which REITs are worth your money, and how can you tell which REITs will continue to pay high dividends? Today, we’ll cover the basics of REIT dividend investing. We’ll also introduce you to a few REIT diversified stocks that currently have investors talking.
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Overview: REIT Diversified Stocks
An investment trust such as a REIT is a special classification of businesses that invest in real estate and real estate assets. To be classified as a REIT, a business must invest at least 75% of its assets in real estate assets. It must also agree to pay out at least 90% of its taxable income back to its shareholders in the form of dividends. In exchange for meeting the REIT classification, the business enjoys generous corporate tax advantages.
A diversified REIT is one that invests in more than 1 type of property. A diversified REIT might invest some of its capital in commercial spaces, residential real estate, healthcare properties and more. Some REITs may also diversify by location — for example, purchasing commercial properties in multiple cities across the country. Each diversified REIT allocates its resources with its own unique distribution.
Investing in diversified REITs is a great way to take advantage of the higher dividends offered without putting all of your financial eggs in 1 single real estate sector.
Real Estate Investment Brokers
Like investing in any other type of stock, you’ll need to open an account with an online broker before you can get started buying REIT diversified shares. Here are a few of our favorite brokers offering online access to the markets and low-cost trading.
No management fees
Between 8% and 10% of the purchase price
$50,000 *Origin Investments is for Accredited Investors only
1.25% per year
1% – 1.75%
Features to Look for in a REIT Diversified Stock
There are dozens of REIT diversified stocks on the major American markets. Unfortunately, not every REIT is worth investing in. Let’s take a look at a few key features you should look for before you invest.
- High earnings per share: One of the first factors you should consider when you compare diversified REITs is each offering’s earnings per share (EPS). A higher EPS means that the money is managing its finances well, and that it has more money coming in through its properties than it is spending on maintenance and upkeep.
- A solid diversification strategy: Every REIT diversified stock has its own definition of what “diversification” means. Some REITs diversify by investing in multiple types of properties. Some diversify by investing in multiple states or cities and some REITs diversify by investing in different parts of a singular city (common in large cities like New York City and Los Angeles). Some large REITs use all 3 of these diversification strategies.
Before you invest in a REIT, take a look at its portfolio to make sure that it has a substantial enough level of diversification to mitigate risk. If you’re planning on investing in only 1 REIT diversified stock, make sure it has multiple levels of diversification.
- An appropriate dividend yield: Most investors are attracted to REITs because they pay out higher-than-average dividends. With so many stocks under $10 in the REIT sector, it can be tempting to only invest with ones that pay out the most in dividends. However, high dividends aren’t always the benchmark of a well-performing REIT.
Instead of looking at the dividend amount per-dollar, look at each stock’s dividend yield. The dividend yield is a ratio that compares the price of the stock to the amount that it pays out in dividends.
REITs tend to have higher dividend yields, but be aware that high dividend yields can be a trap to lure investors in before suddenly dropping the dividend. As a general rule, you should be wary of any stocks that have dividend yields above 10%.
Diversifying Your Real Estate Holdings
REIT diversified stocks can add a level of safety to any portfolio. If you’re interested in adding even more diversification to your real estate investments, consider purchasing a REIT exchange-traded fund (ETF) as well. REIT ETFs bundle multiple REITs in an individual sector, giving you more diversification without purchasing individual stocks.
No matter what you decide to invest in, remember to do your research and keep tabs on how your portfolio is moving.