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If you chase high yield (7%, 10%, or even 19%) then chances are that you'll see a price chart that keeps dropping. Too many investors fall for the high yield bait.
Do REIT distributions depress the price of the stock in the same manner as dividend-paying stocks?
Yup.
Quote:
Originally Posted by arctic_gardener
What about interest distributions from bond ETFs? Do they decrease the price of the ETF?
Yup.
Note that these are just theoretical "price" reductions. The price could be up 2x the dividend or interest the following day since the price is "discovered" in the market by what investors are willing to pay.
Think of it this way; when the entity pays out the income, the entity just got smaller.
If you look at the chart of the REIT or ETF, the price prior to the dividend, is what shows on the chart, not the actual close - just like after a stock split.
However, the entity is paying you cash that is, at the time of payment, just lying around. REITs are required to pay out 90% of their profits. People often buy these investments outside of the REIT or ETF for the income that is also taken in cash. They buy the REIT/ETF to get diversification from default in any one property or issue.
Quote:
Originally Posted by wheelsup
REIT dividends are taxed as ordinary income in most cases from my understanding.
So no, they aren't like regular dividends.
It's a little more complicated than that. Some portion of the REIT dividends might be capital gains which receives special tax treatment. Some portion might be a return of capital, which is not taxable at all.
dividends are actual reductions in your dollars invested when paid out .
the fact is the stock can go up 100% by market action and the relationship is still the same .
that 100% gain would be on less dollars invested then the prior day if you spent the dividend and didn't reinvest it .
that reduction in price is automatically instituted so you have to have less dollars compounding no matter where that stock goes if you didn't reinvest . if you do then the compounding starts off at the same investment dollars as you had the close prior .
each quarter you start at the opening gate with x-amount of dollars . then the markets compound that up or down all quarter until the next payout repeats .
Last edited by mathjak107; 01-20-2016 at 03:00 AM..
If you chase high yield (7%, 10%, or even 19%) then chances are that you'll see a price chart that keeps dropping. Too many investors fall for the high yield bait.
I wish you could just shut up and answer the question that was asked sometimes.....
Reits are better held in an IRA due to their tax structure.
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