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REIT vs. Dividend Stocks
Old 09-19-2015, 12:12 PM   #1
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REIT vs. Dividend Stocks

I don't currently have any REIT's in my after tax brokerage account, but was considering adding them. I was surprised to learn REIT dividends are not qualified - meaning they are taxed at your income tax rate, and not the lower capital gains rate. Due to this finding, I think I'll stick with dividend paying stocks - primarily from the Dividend Aristocrat list.
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Old 09-19-2015, 12:37 PM   #2
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Best place for a REIT is in your Roth.


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Old 09-19-2015, 12:52 PM   #3
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I'm also adding a REIT fund and will be keeping it in a Roth IRA. Another option would be other tax-advantaged accounts like a traditional IRA or 401k. I'm going to go with Vanguard's REIT.
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Old 09-19-2015, 01:11 PM   #4
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I hold VNQ in taxable. I don't have enough space in tax free or tax deferred.
Note that in the past 2 years ~30% of the distributions from VNQ are return of capital and hence not taxable while you still have basis in the stock.
The non-qualified property of the dividends comes from the nature of REITs to be non-taxable at the corporate level. So the argument that dividends are double taxed on that entity drops away. Of course foreign companies will likely have better corporate tax structures and yet can get qualified dividend treatment if they have suitable tax treaties in place.
So VNQI looks to have paid 16% qualified dividends. I don't know how much was return of capital last year.
My Fidelity rep tried to get me to use a variable annuity to keep my reits in. His own analysis when you factored in the need to eventually take distributions and pay income tax showed to keep them in taxable as most of the gains over the period he cited came from capital gains.
It's supper complicated and personal circumstances can change things a lot. In the end space forces my hand anyway.
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Old 09-19-2015, 09:09 PM   #5
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Canadian banks have been beaten down due to low oil prices and a soft Canadian economy. As a result, their dividend rates are quite high (e.g. BMO pays 4.6%) and they are qualified. Several trade on the NYSE and have paid dividends since the 19th century. Of course, there's the exchange rate issue with the looney but IMHO, if you think the oil prices will trend higher over the medium to long term, then the looney will follow.
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Old 09-19-2015, 09:42 PM   #6
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I wouldn't use VNQ as a substitute for dividend stocks. It was the most volatile holding I have had since 2007. Just look at the prices. From Yahoo historical dividend-adjusted data:

10/9/2007 $54.08 near peak of market
3/3/2009 $16.24 near low of market, 30% of peak value
1/27/2015 $87.24 closing high this year, just scanning the data
9/18/2015 $76.30 today

That's not the ride I associate with a dividend stock. It was fun, but not for the faint of heart.
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REIT vs. Dividend Stocks
Old 09-20-2015, 08:24 PM   #7
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REIT vs. Dividend Stocks

In order to qualify as a reit and avoid corporate tax 80% of earnings must be passed on as dividends... Hence they haven't been taxed the first time so they are deemed not qualified to receive some level of full taxation ...

My favorite reit is O the monthly dividend company ... Great for catching the dividend bug.

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Old 09-20-2015, 10:13 PM   #8
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I used to own many REITS (1998-2005). The dividends were composed of widely varying amounts of return of capital (not taxed, but subtracted from cost), several types of capital gains (each taxed differently) along with normal unqualified dividends.
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Old 09-21-2015, 09:45 PM   #9
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My favorite reit is O the monthly dividend company ... Great for catching the dividend bug.

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That's my favorite as well
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Old 10-01-2015, 11:52 AM   #10
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Mine as well. It is my IRA. I am in the MRD phase of life, 10 months of O distributions keep pace with what IRS wants. That won't last forever, at some point I must face conversions of stock.

I notice that O has a preferred stock that pays 6.625% but that rate, historically, doesn't seem to change while O has increased its dividends regularly.
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Old 10-01-2015, 06:05 PM   #11
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Mine as well. It is my IRA. I am in the MRD phase of life, 10 months of O distributions keep pace with what IRS wants. That won't last forever, at some point I must face conversions of stock.

I notice that O has a preferred stock that pays 6.625% but that rate, historically, doesn't seem to change while O has increased its dividends regularly.

You have to be careful with these kind of preferreds. O-F is currently trading almost $1 over par so its current yield is around 6.4%. But more importantly it is callable at par in less than 18 months, so its effective yield is considerably less. REITS tend to call their preferreds when market conditions allow it. They would probably call this now if they were able to as they could reissue with a lower yield.


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Old 10-01-2015, 07:26 PM   #12
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If anyone is considering buying Realty Income, O, a rare opportunity has come up.

O has just announced a secondary offering, which is to be used for retiring other debt. This has caused the common to be down 2.5% after hours today.

I am going to buy more tomorrow, even though I already have some.
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Old 10-02-2015, 03:14 PM   #13
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I looked at O's preferred and wasn't impressed at that dividend rate is fixed, not a good choice for a long term source of income.
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Old 10-02-2015, 04:35 PM   #14
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I looked at O's preferred and wasn't impressed at that dividend rate is fixed, not a good choice for a long term source of income.

It all depends on ones needs I imagine. If O-F was just issued at 6.5% and not callable for 5 years, I would be glad to put that in my Roth. 6.5% in todays inflation environment for an investment grade issue is a very sweet deal. I prefer Utility Preferreds though as they are taxed at 15%, less price volatility, and usually less incentive to call since the cost of payment is tacked onto the utility bills of consumers. I just gambled a bit on a 6.92% yield Baa2 Ute today. Several years past call and hoping it stays that way.


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