Like most income investors, I give a lot of attention to a REIT’s quarterly dividends and whether it can grow those every year. At first, I also considered a REIT’s dividend yield as a major factor when deciding whether I will invest in it or not. However, is it just a matter of picking a REIT with the highest dividend yield?

What is dividend yield? It is simply the dividend per share (DPS) divided by the current share price and expressed as a percentage. For example, if a REIT priced at P100 per share gives out an annual dividend of P5, then its dividend yield is 5%. In year 2, that same REIT pays a dividend of P10 and its share price appreciated to P200. So its dividend yield remains at 5%. Just looking at the dividend yield alone doesn’t really tell you that this REIT has essentially doubled both its dividend and share price in a year! An extraordinary accomplishment for our hypothetical REIT and a missed opportunity if an investor ignored it simply because he or she decided to invest in another REIT with a dividend yield of 7% but whose share price has fallen (a lower denominator will increase the yield or even a fall in both dividend and share price can still result in a high yield since its a ratio).

The dividend yield tells us what the dividend is relative to the CURRENT share price. It does not necessarily reflect how good a REIT is or how well it grows dividends over time. To keep track, I personally record yield-on-cost. Using the example above, if I bought one share at P100, the yield-on-cost is 5% for year one and 10% for year two (P10 divided by P100). Given a long time horizon, it is possible for an investment to have a yield-on-cost of 100%. Imagine receiving back what you paid for every single year in dividends!

The dividend yield does becomes useful when comparing the dividends of different REITs at the same time. If 2 REITs have dividends of P0.25 and P1.0, it doesn’t really mean that the P1.0 would be the bigger yielding REIT relative to how much one invested. In this instance, using the dividend yield would be a useful tool.

If you click on the menu, I aim to record the yearly dividend per share growth of all the REITs since this would be a better measure of performance over time.