Table of Contents

  1. What is Dividend Yield in Real Estate?
  2. How to Calculate Dividend Yield?
  3. How to Calculate a REIT’s Dividend Yield?
  4. Why are REITs Dividend Yields Higher than Other Companies?
  5. Dividend Yield vs Dividend Rate vs Dividend Payout Ratio
  6. Is it Better to Have a High or Low Dividend Yield?
  7. Why is Dividend Yield Important?

Dividend yield is a measure used to calculate the amount a company pays out in dividends in a given year relative to the price of its stock. The value obtained represents the approximate dividend-only return that a stock provides.

Since the calculation of the dividend yield involves both the amount paid out in dividends per year, as well as the share price, a drop in the share price may increase the yield, while a rise in the share price would decrease the yield. As a result, investors should consider other factors besides the dividend yield when evaluating a company, as a stock that has recently fallen in value may have an unusually high dividend yield.

What is Dividend Yield in Real Estate?

Dividend yield in real estate is similarly a measure of the amount a real estate company pays out in dividends relative to the price of its stock.

There are many forms of investment available for real estate investors, including student accommodations, offices and multifamily properties. Real estate companies own and manage these investment properties, which generate relatively stable and recurring rental income to be paid out as dividends. Hence, real estate stocks are an attractive option for investors looking for a consistent source of income.

Read also: Understanding Investment Properties

How to Calculate Dividend Yield?

To calculate dividend yield, we divide the annual dividends per share by the price per share. The dividend yield ratio is expressed as a percentage.

How to Calculate Dividend Yield

The dividend yield may be manually calculated by retrieving dividend amounts from the company’s last annual report or website, or from various online sources which calculate the yields. Some dividends are paid out on a quarterly or half-yearly basis, so investors should ensure that they include the entire year’s dividend payments when calculating the dividend yield.

How to Calculate a REIT’s Dividend Yield?

A real estate investment trust (REIT) is a company that pays investors dividends generated through the rental income of the properties that it owns, operates and manages.

The process of calculating a REIT’s dividend yield is similar to any other company. The REIT’s annual distributions per share are divided by the current share price of the REIT, and express the resultant dividend yield as a percentage.

Why are REITs Dividend Yields Higher than Other Companies?

REITs tend to distribute a large share of their profits in dividends and offer above-average dividend yields, and are mandated to do so in certain countries in order to be classified as a REIT. Hence their dividend yields might be disproportionately high as compared to other companies.  

Some examples of Singapore REITs and their dividend yields include:

S-REITs REIT Dividend Yield (2020) REIT Dividend Yield (2019)
Ascendas REIT 5.60% 5.47%
Suntec REIT 5.20% 5.30%
Keppel REIT 3.47% 4.58%

In recent times, REIT dividend yields have taken a hit as REITs and the broader real estate sector have not been spared from the effects of the COVID-19 pandemic, affecting real estate prices and dampening demand for certain property sectors such as office space.

Read also: Seeking Distressed Assets – A Playbook during Tumultuous Times

Dividend Yield vs Dividend Rate vs Dividend Payout Ratio

A company’s dividend rate refers to the absolute monetary amount an investor receives as a dividend in a given financial year. A dividend yield uses the dividend rate in its calculation, but also factors in the price per share and is expressed as a percentage rather than an absolute amount.

The dividend payout ratio calculates the total annual dividend payout as a proportion of the company’s net income generated in a given year. The dividend payout ratio is normally seen as a more reliable measure of whether a company can provide consistent dividend distributions than the dividend yield, as the latter does not take into account the company’s net income.

Is it Better to Have a High or Low Dividend Yield?

In general, investors seeking higher yield investments may lean towards companies with a high dividend yield. However, it is important to consider other factors that may affect an investor’s returns. The choice between a high or low dividend yield depends on investors’ risk/reward spectrum appetite. Higher dividend yield stocks provide more income, but the higher yield often comes with greater risk. Lower yielding dividend stocks may generate less income, but they are commonly offered by more stable companies with a record of consistent growth and steady payments.

It would be prudent to go through the financial and dividend history of the company and assess whether dividends have increased, decreased, or maintained steady. Investors should be forward looking as well and analyse whether the company has the income generation potential, or sufficient cash reserves, to continue these dividend payouts in the future.

Read also: Top 8 Sources of Risk in Real Estate Investment Deals

It is also worth noting that if a company is consistently distributing a large amount of dividends, it implies that the money is not being reinvested into the company’s growth. While this might not have a major impact on companies that have huge cash reserves, investors should be wary if companies are distributing large dividends despite lackluster business performance, or if they do not have sufficient cash reserves and are taking on additional debt or equity just to fund or maintain high dividend payouts.

Read also: Diversifying Real Estate Investing

Why is Dividend Yield Important?

Some investors, especially retirees, may rely on dividend payments from the shares they hold as a primary source of income. For such investors, the dividend yield is essential to the management of their personal finances. For a company’s shareholders, the dividend yield is an important barometer of how a company is doing financially, and a company’s dividend policy also gives an indication of management’s stance on utilising cash reserves.

In some countries, Institutional investors also value dividends because of the lower dividend taxation on corporations. Even for accredited investors, positioning their portfolios to focus on growing dividends can also deliver strong long‐term returns regardless of the market cycle, especially as dividends have accounted for a significant portion of historical total stock market returns.

RealVantage is a real estate co-investment platform connecting investors with carefully selected properties located in different countries. Each property is chosen based on its potential for risk-adjusted returns and vetted by professionals with decades of experience in the real estate industry. RealVantage allows investors to own various types of real estate assets, including steady income-generating assets, in countries around the world.


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Disclaimer: The information and/or documents contained in this article does not constitute financial advice and is meant for educational purposes. Please consult your financial advisor, accountant, and/or attorney before proceeding with any financial/real estate investments.