In August, REITs real estate will be the 11th sector to be included in the S&P 500

What is a REIT according to Wikipedia? “A real estate investment trust is a company that owns, and in most cases operates, income-producing real estate. REITs own many types of commercial real estate. Ranging from office and apartment buildings to warehouses, hospitals, shopping centers,  hotels, and even timberlands. Furthermore, some REITs also engage in financing real estate.”

REIT Stocks: Higher Dividends

I met with a client this past week. He brought to my attention that he was looking at REIT stocks. I asked him why and dug a little more. I’m a dork about learning new information. REITs pay out higher dividends and by law have to pay out 90% of their earnings. Wikipedia explains this here. “REITs are strong income vehicles because to legally avoid paying U.S. Federal income tax, REITs generally must pay out at least 90 percent of their taxable income in the form of dividends to shareholders”

In conclusion, my client was only looking at this from the standpoint that if he owned index funds and mutual funds for that matter, those funds would have to now buy/hold.  I was looking at it from a point of view that now all the “Index funds” are forced to buy into the REITs. That said, the theory is that there are REITs that will become the 11th sector in the S&P 500.

Let’s go back to simple economics; supply and demand. There are a limited number of shares so if demand is forced to increase, then they will drive the price of all 25 stocks up. Time will tell.