A REIT trades like a stock but must pay out at least 90% of its taxable income, so it usually pays a higher dividend. Most regular stocks keep more of their profit to grow the business, so they pay less now and aim to grow more over time. One leans toward income today, the other toward growth later.
How they stack up
General ranges, not a rating of any specific investment. Yields and rates change over time.
Which fits when
- Regular income matters more to you than fast growth
- You want your income to come from rent, not one industry
- You will hold them in a retirement account or accept the tax
- You have many years for your money to grow
- You want the widest possible variety
- You prefer payouts that qualify for lower tax rates
Why REITs pay more
Most companies decide each year how much profit to keep and how much to share. REITs do not get that choice. To avoid corporate income tax, they pass at least 90% of their taxable income to shareholders. The tradeoff is that less money stays behind to grow the business, so REIT prices tend to grow more slowly.
Why REITs react to interest rates
REITs borrow to buy buildings, and their payouts compete with what savers can earn elsewhere. When interest rates rise, borrowing costs more and investors can earn more from bonds and savings, so REIT prices often dip. When rates fall, the reverse tends to happen. See Why Interest Rates Matter.
Most long-term plans hold both. Broad stock funds do the heavy lifting on growth, and REITs add income that comes from rent rather than from company profits. Income that comes from several places does not depend on one bet.
Questions people ask
Are REITs riskier than stocks?
Not necessarily riskier, but different. REITs are concentrated in one industry and react strongly to interest rates. A broad stock fund spreads risk across every industry. Both can lose value.
Do REITs grow like stocks?
They can grow, but usually more slowly, because most of their income is paid out instead of reinvested in the business.
Can I buy REITs in a regular brokerage account?
Yes. Publicly traded REITs and REIT funds trade on stock exchanges, so you buy them the same way you buy any stock or ETF.
More side-by-sides
Keep reading: Is Real Estate Investing Right for You? · Why Investors Love Dividends
For education only and not personalized investment, tax or legal advice. Ranges are general illustrations, not a prediction or a promise of results. All investing involves risk, including the possible loss of principal. Tax rules change; check current IRS figures or a tax professional for your situation.