Can you live off REIT dividends?
Over time, the cash flow generated by those dividend payments can supplement your Social Security and pension income. Perhaps, it can even provide all the money you need to maintain your preretirement lifestyle. It is possible to live off dividends if you do a little planning.
This broader mix of stocks offers higher payouts and greater diversification than what you'll get with the Invesco QQQ Trust. And if you've got a large portfolio totaling more than $1.1 million, your dividend income could come in around $50,000 per year.
Creating a diversified portfolio, understanding the implications of dividend reinvestment plans (DRIPs) and being aware of tax efficiency are vital steps in maximizing dividend income while minimizing risks. The dream of living off dividends is attainable with the right financial planning and investment strategy.
As of April 8, 2024 publicly traded U.S. equity REITs posted a one-year average dividend yield of 4.35 percent. As of April 8, 2024 publicly traded U.S. equity REITs posted a one-year average dividend yield of 4.35 percent.
“To qualify as a REIT, a company must have the bulk of its assets and income connected to real estate investment and must distribute at least 90% of its taxable income to shareholders annually in the form of dividends.”
If you own REITs in an IRA, you won't have to worry about dividend taxes each year, nor will you have to pay taxes in the year in which you sell a REIT at a profit. In a traditional IRA, you won't owe any taxes until you withdraw money from the account.
Once you have $1 million in assets, you can look seriously at living entirely off the returns of a portfolio. After all, the S&P 500 alone averages 10% returns per year. Setting aside taxes and down-year investment portfolio management, a $1 million index fund could provide $100,000 annually.
So, Can You Get Rich Off Of Dividends? Dividend investing can indeed be a path to building wealth over time. By harnessing the power of compound interest and carefully selecting dividend-paying stocks, investors can create a growing stream of passive dividend income.
| Portfolio Dividend Yield | Dividend Payments With $100K |
|---|---|
| 1% | $1,000 |
| 2% | $2,000 |
| 3% | $3,000 |
| 4% | $4,000 |
Since REITs are required by the IRS to pay out 90% of their taxable income to shareholders, REIT dividends are often much higher than the average stock on the S&P 500. One of the best ways to receive passive income from REITs is through the compounding of these high-yield dividends.
Which REIT pays the highest dividend?
| Company (ticker symbol) | Sector | Dividend yield |
|---|---|---|
| Chimera Investment (CIM) | Mortgage | 14.3% |
| KKR Real Estate Finance Trust (KREF) | Mortgage | 14.0% |
| Two Harbors Investment (TWO) | Mortgage | 14.0% |
| Ares Commercial Real Estate (ACRE) | Mortgage | 13.8% |
“I recommend REITs within a managed portfolio,” Devine said, noting that most investors should limit their REIT exposure to between 2 percent and 5 percent of their overall portfolio. Here again, a financial professional can help you determine what percentage of your portfolio you should allocate toward REITs, if any.
In a market that generates a 2% annual yield, you would need to invest $600,000 up front in order to reliably generate $12,000 per year (or $1,000 per month) in dividend payments. How Can You Make $1,000 Per Month In Dividends?
Too many people are paid a lot of money to tell investors that yields like that are impossible. But the truth is you can get a 9.5% yield today--and even more. But even at 9.5%, we're talking about a middle-class income of $4,000 per month on an investment of just a touch over $500K.
To generate $5,000 per month in dividends, you would need a portfolio value of approximately $1 million invested in stocks with an average dividend yield of 5%. For example, Johnson & Johnson stock currently yields 2.7% annually. $1 million invested would generate about $27,000 per year or $2,250 per month.
For Group REITs, the consequences of leaving early apply when the principal company of the group gives notice for the group as a whole to leave the regime within ten years of joining or where an exiting company has been a member of the Group REIT for less than ten years.
All the rental income from a particular project could be “bad income” and ultimately cause a REIT to lose its REIT status if its ITSI exceeds 1% of all amounts received or accrued by the REIT with respect to an applicable property for a particular tax year.
REITs are a Potent Source for Retirement Income
On average, 70% of the annual dividends paid by REITs qualify as ordinary taxable income, 15% qualify as return of capital, and 16% qualify as long-term capital gains.
By default, all dividends distributed by a REIT are considered ordinary, or non-qualified, and are taxed as ordinary income. REIT dividends can be qualified if they meet certain IRS requirements. The Jobs and Growth Tax Relief Reconciliation Act of 2003 separated dividends into these classes.
The majority of REIT dividends are taxed as ordinary income up to the maximum rate of 37% (returning to 39.6% in 2026), plus a separate 3.8% surtax on investment income. Taxpayers may also generally deduct 20% of the combined qualified business income amount which includes Qualified REIT Dividends through Dec.
Is it OK to hold REITs in a taxable account?
This makes them a great type of dividend investment to hold in tax-advantaged retirement accounts like traditional IRAs, Roth IRAs, and 401(k)s. In this scenario, you wouldn't need to keep track of the cost basis from ROC. It's also okay to own REITs in taxable accounts.
As long as you keep the withdrawal rate at or below 4%, your money should last for decades. To apply the 4% rule, divide your income requirement by 4% to calculate your targeted portfolio size. If $75,000 is your income requirement, for example, you can safely get it from a $1.87 million portfolio.
According to the Federal Reserve's latest Survey of Consumer Finances, only about 10% of American retirees have managed to save $1 million or more.
The short answer is yes, $500,000 is enough for many retirees. The question is how that will work out for you. With an income source like Social Security, modes spending, and a bit of good luck, this is feasible. And when two people in your household get Social Security or pension income, it's even easier.
If you like Apple or Microsoft, you will need almost 1.2 M or 1.4 M. For a low yield dividend Visa, you may need to invest around 2 M. Investing in 1 stock to generate $1000/month income would take too much risk for an individual.
