REIT dividends can be great for investors seeking to generate passive income. In mid-2025, the average REIT offered a dividend yield of around 4%, more than double the S&P 500's yield (less than 1.5%).
However, while most REITs are great options for those seeking to generate passive income from real estate, not all are safe bets. Some REITs are at higher risk of reducing their dividend payments due to various issues. A very high dividend yield is often a sign that danger lurks for that REIT's dividend.
One subgroup of the REIT sector known for its high dividend yields is mortgage REITs or mREITs. These REITs use leverage (i.e., debt) to invest in real estate debt, like mortgage-backed securities (MBS) and other real estate loans. Much like banks, these REITs make money on the spread between their borrowing rates and the income yield on their debt investments. For example, if a mortgage REIT can borrow money at 5% and buy MBS at 7%, they can earn a 2% spread.
When the spread is wide, mREITs can make a lot of money, which they use to pay lucrative dividends. However, when spreads narrow due to changes in interest rates, they make less money. A decline in their income can cause an mREIT to cut its dividend.
Here's a look at three mREITs that might not be able to sustain their currently high dividends for much longer.
Our list of mREITs
Annaly Capital Management
1. Annaly Capital Management
In mid-2025, Annaly Capital Management's (NLY 0.73%) dividend yield was more than 14%, roughly 10 times higher than the S&P 500's.
The REIT focused on residential mortgages has cut its dividend several times in the past. It most recently delivered a more than 25% reduction in early 2023 when it cut its quarterly payment from $0.88 to $0.65 per share. The driving factor was the expectation that Annaly's earnings available for distribution (EAD) would decline, which is exactly what happened. EAD fell from $0.89 per share in the final quarter of 2022 to $0.68 per share in the last period of 2023.
Annaly's EAD started to recover by the first quarter of 2025 ($0.72 per share), enabling the REIT to raise its quarterly dividend payment to $0.70 per share. However, if its earnings fall below the dividend again (and remain there), the REIT will need to cut its payout again. Given that risk, investors should beware of this REIT.
Arbor Realty Trust
2. Arbor Realty Trust
Arbor Realty Trust's (ABR 1.56%) dividend topped 10% in mid-2025. The mortgage REIT, which is focused on multifamily properties, had been steadily increasing its dividend until the middle of 2023:
However, the REIT stopped increasing its payout due to the impact higher interest rates are having on the multifamily sector and its earnings. When the REIT last raised its dividend in July 2023, its dividend payout ratio was 75% of its distributable earnings ($0.43 dividend on $0.57 of distributable earnings). Fast forward a year and a half, and the REIT's distributable earnings were down to $0.40 per share in the fourth quarter of 2024, just slightly above its $0.43 per share dividend payout.
Its earnings continued to fall in 2025. It posted $0.28 per share of distributable earnings in the first quarter (or $0.31 per share after adjusting for the $7.1 million loss from the sale of two real estate properties it owned). As a result, the REIT cut its dividend payment to $0.30 per share. If Arbor's earnings continue to decline, it might need to cut its dividend again.
Ready Capital
3. Ready Capital
Ready Capital's (RC 2.2%) dividend yield was more than 12% as of mid-2025. The multistrategy real estate finance company was facing some headwinds from underperforming assets and other issues. As a result, the REIT wasn't making money. It posted a distributable loss of $0.09 per share and broke even after adjusting for realized losses. That was well below its dividend payment of $0.125 per share, which it had already cut in early 2025 to better align its payout with its anticipated earnings.
On a positive note, the REIT was taking "decisive actions to reset the balance sheet and restore profitability,” CEO Thomas Capasse said in the first-quarter earnings release. The company completed its acquisition of United Development Funding IV, which provides capital solutions to real estate developers and regional homebuilders. It also bought Madison One and Funding Circle USA. Those deals, along with the company's other actions, position it to grow its distributable earnings in 2025 and 2026.
However, if Realty Capital's earnings don't improve, the REIT will need to cut its big-time dividend again.
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Look for signs of danger before buying a REIT for its dividend
REITs can be great income-generating investments because they tend to offer higher dividend yields. However, some REIT dividends aren't worth the risk. Investors must make sure there is no lurking danger in a higher-yielding payout before buying a REIT for dividend income.
