REIT: How to Evaluate Them

REITs are typically seen as the dividend cash cows for a portfolio much in the same way the golden snitch is seen as a win for Harry Potter in a quidditch game. These massive dividend payers are a dime a dozen however and their metrics seem to be all over the place. Why, you might ask? This is because of a number of factors.

The most important factor is that an REIT (Real Estate Investment Trust) is a unique type of investment that is forced by law to pay out 90% of their income received as dividend payments to shareholders. This causes your typical method of evaluation to fail. This is because the P/E ratio and subsequently most other common ratios become affected by the fact that the net income is slashed due to those dividend payments. How then can we tell if the REIT in question is worth our investment?