Editor’s note: This article was first published in January 2021 and reflects market conditions at that time. It is general information, not investment advice.
One of the most dependable ways to build wealth is a diversified portfolio held for the long term. Growth is part of that. Income is another part, and that’s where dividend-paying stocks come in.
What are dividends?
A dividend is a payment a company makes to its shareholders, usually out of profits. Some companies pay quarterly and some pay once a year. Broadly, the more profitable a company is, the more it can afford to pay. For investors, dividends are income that arrives whether or not the share price moves.
Holding a range of dividend-paying stocks and funds can produce a steady stream of income over time. They aren’t all equal, though. Some pay more than others, and some are more reliable.
Where REITs fit in
We’ve written before about ways to invest in real estate, and REITs come up every time. They let you invest in real estate without buying, selling, maintaining or renting a property yourself. Because they trade like any other stock, all you need is enough capital for one share.
What are mREITs?
Mortgage REITs, or mREITs, invest in real estate debt. Some make loans directly, and others buy mortgages or mortgage-backed securities from the lenders that originated them.
Unlike traditional REITs, mREITs don’t depend on rent or property sales. They earn money from the interest paid on the loans they hold.
Why investors were looking at mREITs in 2021
Many homeowners fell behind on mortgage payments in 2020. Even so, the housing market was starting to boom, and despite widespread job losses, people were buying houses. That drew attention to mREITs focused on residential property.
Commercial mREITs were worth a look as well. Many companies had sent staff home to work, but commercial property hadn’t stopped being needed. And because of the pressure from COVID, commercial mREITs were trading at more attractive valuations than they had in years. According to Credit Suisse, commercial REITs were yielding 10.5% on average at the time, against a historical average of 9%.
Keep in mind
High yields come with risk. mREITs are sensitive to interest rates and to loan performance, and dividends can be cut. Do your own research before investing.
Related reading: As House Flipping Heats Up, mREITs Are a Smart Move.
