10 Statistics That Show How Much Income REITs Can Bring You

Real estate investment trusts (REITs) are becoming increasingly popular dividend stocks for investors. These special types of stocks invest in real estate and real-estate-related securities. REITs are required to pay at least 90% of taxable income in the form of dividends, which often translates into competitive dividend returns.

If you're looking to grow your dividend income, here are 10 statistics showing how much income REITs could actually bring you.

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In 2021, the S&P 500's average dividend yield was 1.2%. The REIT index, as tracked by the National Association of Real Estate Investment Trusts (NAREIT), in that same period was 2.85%.

Historically, the NAREIT index for both equity and mortgage REITs has outpaced the S&P 500 by at least double, but for many years, it's been far more. In 2017, for example, the average dividend yield for all REITs was 4.27%, while the S&P 500's was 1.8%!

ALSO READ: What Is Dividend Yield?

Year-to-date 2022, the average dividend yield for all REITs is 3.16% at the time of this writing. That means, for every $10,000 you invest, assuming you're receiving at least the average dividend return, you could earn $316 in dividend income.

A 3.16% dividend yield may not seem fantastic, but it's over two times more than the S&P 500 -- and many individual REITs pay much higher dividend yields, which can translate into greater income.

Mortgage REITs originate mortgages for residential or commercial real estate or buy and invest in real estate mortgages or other mortgage-related securities.

Known for their riskier business model, which uses a lot of leverage to generate income, these REITs pay a more competitive dividend return than their equity REIT counterparts, which invest in physical real estate. The average dividend yield year to date is 10.65%, with returns fluctuating between 9% and 11.5% historically.

ALSO READ: 1 Big Risk Factor Mortgage REIT Investors Should Know

According to NAREIT, publicly traded REITs, which total 213 companies today, paid $51.7 billion in dividends in 2020, and non-publicly traded REITs paid $2.2 billion -- for a total of $53.9 billion. Dividend payouts in 2021 are expected to be much higher as several REITs temporarily paused dividend payouts in light of the pandemic but have returned to more typical payouts.

Investors should look at the current dividend return as a guiding point while understanding dividend income is likely to grow. The price at which you purchase your shares determines the return over time.

For example, in 2018, I purchased shares of Innovative Industrial Properties (NYSE:IIPR) for $29.75. Today's annual dividend payout of $7.00 means my dividend yield is 23%, not the 4% investors receive if they invest in IIPR today. For every $1,000 I invested in 2018, I now receive $235.27 in dividend income.

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Most people look toward dividend income only as a means to earn income through REITs, but many REITs can provide mega growth opportunities with higher-than-average dividend payouts.

Innovative Industrial Properties -- which owns and leases out real estate through a special sale-leaseback structure to experienced and licensed medical marijuana operators -- is one of the biggest growth success stories among REITs.

Share prices are 807% higher than they were just five years ago, with recent highs being as much as 1,200% greater than its initial public offering (IPO) in 2017. While this isn't passive income, you'll certainly have more money from the investment when it comes time to sell than when you started.

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Mortgage REIT Armour Residential REIT (NYSE:ARR) invests in mortgage-backed securities warranted by the government -- think Fannie Mae, Ginnie Mae, and Freddie Mac loans. At the time of this writing, Armour Residential pays a whopping 16.46% dividend return, which equals $1,646 for every $10,000 invested. This is an extremely competitive dividend yield; however, it's not without risk.

Its payout ratio, which is the percentage of dividends as it relates to the company's earnings, is at roughly 120% based on 2022 estimates. Although, it's worth noting that it's maintained this high payout ratio for years now while increasing dividends, so it could be more sustainable than it seems.

Simon Property Group (NYSE:SPG) is one of the highest-dividend-yielding equity REITs today, paying just over a 6% return at the time of this writing, which equates to $605 for every $10,000 you have invested. Specializing in the ownership of malls across the globe, Simon is seeing its fair share of challenges in the pandemic environment.

The company's share prices plummeted in 2020, recovering to pre-pandemic levels in late 2021. Share prices are down 30% over the last three years; however, today's discount is a dividend investor's benefit. If Simon is able to recover, as many investors believe it can, that dividend return could become much greater in the future.

ALSO READ: How Risky is Simon Property Group?

Historically, REITs have outperformed the S&P 500 for the last 25 years, producing a 9.46% annualized return compared to the S&P 500, which had an 8.92% annualized return from 1997 to 2022. Buying select REITs and holding for the long term means your money can grow at an accelerated rate, earning you more income over the long haul.

Federal Realty Trust (NYSE:FRT) is the only REIT among the 39 Dividend Kings, a prestigious title given to stocks that have increased dividend payments for the past 50 years or more.

Similarly, Realty Income (NYSE:O), Orion Office REIT (NYSE:ONL), and Essex Property Trust (NYSE:ESS) are REITs that hold the title of Dividend Aristocrat, a company that has increased dividends for the past 25 years.

Dividend increases translate to more income and greater returns for investors. Several other REITs are on their way to making these prestigious lists as well.

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The ultimate goal for building dividend income in REITs is selecting stocks that pay a competitive dividend return while being able to grow their business with minimal risks. Combining these factors means you're in the ideal position to have your dividend income grow as the company grows and, ultimately, earn more income.

Liz Brumer-Smith has positions in Innovative Industrial Properties. The Motley Fool has positions in and recommends Innovative Industrial Properties. The Motley Fool has a disclosure policy.