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What really matters is if those reits can sustain to pay out those yields. I know a lot of reits are leveraged to the hilt. They are finding that they need to start paying interest instead of dividends.
Check out where Ben Stein's Money is: RQI. Last I checked, 73% div yield on this "quality realty income" closed end fund. I know not in the same realm as Vanguard's REIT index, but still. May go all the way to zero.
When prices drop like a rock but yields are calculated on previous dividends they shoot up but it is just an illusion. Today the dividend yield on Citibank shows to be 10% because the stock value is down and the last dividend is used in the calculation but expect little or no dividend when the time comes. REITs will not pay huge dividends... many are stuggling to stay solvent.
Unlike Citibank, REITS are obligated by law to pay out dividends. Individual REITS may go out of business, but the REIT index should not. Low yields on REITS (like what they were 2 years ago) signalled the REITs were too expensive...and they were. Since then, REITS have taken a beating along with the whole market. Prices are much more reasonable today, hence the higher yields. I'd expect yields to hover between 5 to 7% until REITs overheat again.
My last dividend on 1900 shares of VNQ was $1500… hardly worth it as they have dropped over $2000 today and 60% over the last couple of years.
Yeah, lots of things look cheap here close to the bottom but I would not recommend much in today’s market.
That is because you bought at the top.
Personally, I think REITs are still solid investments. I don't think people are going to stop renting apartments, shopping centers, public storage units any time soon. What you need to focus on is buying solid REITs that have good business fundamentals. Yes, some REITS are going to go insolvent due to heavy debt loads but not all of them are. If I were to make a dividend portfolio it would be:
5 REIT stocks
5 MLPs
5 Canadian funds
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