3 Reasons to Hold REITS in a Portfolio (VIDEO) by Dr. Laura and Professor Steve

As part of our on-going series of educational videos, this week we briefly discuss Real Estate Investment Trusts (REIT’s) and why we think they are an important part of your portfolio:

1. Strong returns: Since the 1991, U.S. REITs have delivered an 11.1% annual return, outperforming broader stocks with an annual return of 10.5% and bonds with an annual return of 5.9% for the same timer period.

2. High dividend yield: To maintain their tax status as pass-through entities, U.S. REITs are required to pay out at least 90% of their taxable income to shareholders. Income is taxed only once, at the shareholder level.  This distribution requirement, along with REITs’ cash flow–oriented businesses, is why REITs are known for paying attractive dividends. Currently the 360-day yield on our REIT holdings is 6-9%.

3. Diversifying correlations:  Because REIT’s are not completely “correlated” with the other investments, adding them improves portfolio performance. While there are instances where REIT values have dropped  concurrent with the stock market (2008 and 2020), something called the yield effect offsets the decline more than the yield of the stock market. Yields on REIT’s have been much higher historically than the stock market.  Since 1991, U.S. REITs have had a 0.57 correlation with the S&P 500 and a 0.21 correlation with U.S. bonds. Global REITs have also exhibited diversifying correlations.

For more information on what we consider when adding REITs to our clients’ portfolios please watch our video: