What Is a REIT—and What Actually Pays the Dividend?

Most investors first notice a REIT because of its dividend yield.

That is the wrong place to begin.

A REIT (Real Estate Investment Trust) owns or finances income-producing real estate.

This article focuses on equity REITs, which own and operate the properties themselves. Apartments, warehouses, shopping centers, data centers, hospitals, and storage facilities can all sit inside their portfolios.

The dividend starts somewhere else entirely.

It starts with rent.

That rent must cover property expenses, maintenance, interest, and the recurring cost of keeping the buildings occupied and competitive. Only then can the remaining cash support the payout.

This is why two REITs with the same yield can carry very different risks.

One may own fully leased warehouses with long contracts and manageable debt. Another may own aging properties, face large lease expirations, and need to refinance at higher rates.

The yield alone cannot show that difference.

The 90% rule is not a safety guarantee

REITs must generally distribute at least 90% of taxable income to maintain their tax status. But that rule does not guarantee that every dividend is safe. Taxable income is not the same as recurring cash available for distribution.

That gap is why REIT reporting leans on FFO (Funds From Operations) and AFFO (Adjusted Funds From Operations) rather than EPS.

A REIT is not a yield with buildings attached. It is a property business whose cash flow happens to reach investors through a stock.