A real estate investment trust owns income-producing property, rents it out under long leases, and hands most of the cash to shareholders. Congress created the structure in 1960 so ordinary investors could hold institutional-grade real estate alongside stocks and bonds. For income investors, the rules matter more than management discretion, because they drive most of the cash that arrives.
What a REIT actually owns
A typical equity REIT holds a focused portfolio: apartments, warehouses, cell towers, data centers, shopping centers or timberland. Rent rolls in under leases of three to fifteen years, often with contractual escalators of 2 to 3 percent a year. Over long holding periods, total return splits roughly half from price appreciation and half from reinvested dividends.
Concentration is the first risk to check. A net lease REIT like Realty Income spreads across more than 15,000 single-tenant properties with tenants in dozens of industries, while a portfolio holding three mall REITs can lose a third of its value on two bankrupt anchor tenants. Occupancy above 95 percent and weighted average lease terms beyond five years are healthy markers.
How the 90 percent payout rule works
United States REITs must distribute at least 90 percent of taxable income to unitholders to keep their pass-through tax status. That single rule explains the fat yields, typically 3 to 6 percent, and it explains why REITs rarely fund expansion from retained earnings. Growth capital comes from new share issues and property recycling.
Track funds from operation instead of headline earnings per share. Depreciation on buildings understates the economics of well-maintained property, so FFO adds it back and has become the accepted coverage measure. A payout near 70 to 80 percent of FFO leaves room for maintenance and acquisitions; coverage approaching 100 percent flags a dividend that grows only by issuing equity.
Monthly versus quarterly payers
Realty Income, ticker O, has made 650-plus consecutive monthly dividend payments since its 1994 listing, which is why it calls itself the monthly dividend company. Monthly cash suits retirees drawing an income. Most peers, including Prologis, the logistics owner with over a billion square feet of warehouse space, pay quarterly like ordinary corporations.
The yield gap tells you what the market expects. Realty Income has yielded 5 to 6 percent, reflecting the slower growth of net lease rents, while Prologis yields closer to 3.5 percent because logistics rents ran hotter for years. Neither choice is wrong; one trades income now, the other rents later.
Rate sensitivity is the main macro risk
REIT prices move inversely with long-term Treasury yields because dividends compete directly with bonds for capital. In 2022, when the 10-year Treasury yield climbed from roughly 1.5 to near 4 percent, the FTSE Nareit All Equity REITs index lost about 25 percent despite high occupancy. Rate relief in the following two years reversed much of the damage.
The cushion is the spread between implied property yields and the 10-year. When that spread ran historically wide, as in late 2023, the sector outperformed over the following twelve months. Rising rates break the model only when they trigger tenant defaults or push refinancing costs above property-level yields.
Buying income on SolisVault
SolisVault lists the major exchange-traded REITs alongside sector ETFs, with dividend payment dates on the order screen and fractional sizing for staggered entry. Spreads on names like O and PLD sit within a few cents in normal sessions, so limit orders near the mid price keep income investors from handing the first dividend to market makers.
Before the next Federal Reserve decision, mark two lines on any REIT you hold: the FFO payout ratio and the yield spread versus the 10-year Treasury. Buy when the spread is historically wide and coverage sits below 85 percent of FFO, then let the distribution schedule, monthly or quarterly, compound quietly on SolisVault.