REIT
A company owning income real estate that must distribute 90% of taxable income.
What is REIT?
A real estate investment trust gives liquid, diversified exposure to property. In exchange for distributing at least 90% of taxable income, a REIT pays no corporate tax. Those distributions are generally taxed as ordinary income, so REITs sit best in tax-deferred accounts.
REIT: a worked example
A REIT yielding 4% throws off ordinary-income dividends - inefficient in a taxable account for a high-bracket client.
More terms in Securities & Instruments
Common Stock
An ownership share in a company, with voting rights and last claim on assets.
Preferred Stock
Equity with a fixed dividend and priority over common, usually without votes.
Bond
A loan to an issuer that pays interest and returns principal at maturity.
Coupon Rate
The bond's stated annual interest as a percentage of par.
Yield to Maturity (YTM)
The total annualized return if you buy today and hold to maturity.
Par Value (Face Value)
The principal repaid at maturity, conventionally $1,000 per bond.
Duration
A bond's price sensitivity to a 1% change in interest rates.
Credit Rating
An agency's assessment of an issuer's likelihood of default.