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If I own a REIT or dividend-paying stock that costs around $16.75 per share and pays a dividend of about 10 cents per share, would the dividend payouts increase as the price per share increases?

If I own a REIT or dividend-paying stock that costs around $16.75 per share and pays a dividend of about 10 cents per share, would the dividend payouts increase as the price per share increases?

Real Estate, Stocks
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November 2018

Dividends for stocks are determined differently than payouts for REITs- Real Estate Investment Trusts.  The price you pay to purchase the investment and how much it appreciates has no influence on how amount of the dividend.

For a stock, the corporation determines the dollar amount per share that will be paid as a dividend to shareholders.  Many companies are committed to regularly increasong that amount as the company grows.  We usually believe that a rising stock price reflects a healthy, growing company. So it is not unreasonable to expect the dividend amount to increase over time for a stock that is increasing in value.  This has nothing to do, however, stock price itself; the board of directors has to approve and announce any dividend incresa.

You use the word "payout" and this is an actual indicator in investment analysis.  Payout measures the amount of a dividend compared to the company's earnings (annual dividend amount divided by annual earnings per share).  Sometimes investors search out high dividend payouts for income producing investments, but if the payout is unusually high, it might be an indicator of a company in distress and the dividend amount may be at risk.  This is exactly what we saw this week when the General Electric cut its dividend.!

REITs work very differently. REITs are required to pay to shareholders 90% of their annual taxable income.  So payouts can vary from year to year- though many of them are quite stable.  Also, the payment from a REIT is not a "qualified dividend."  This means it does not qualify for the reduced federal tax rate for dividends.  Payouts from REITs are taxed to you the same as your oridnary income that you earn from wages.

November 2018
November 2018
November 2018