REIT Dividends Are Not A Mirage

A couple of days ago, an article put forth the proposition that REIT dividends are a mirage. "…Often the reason for the high dividend yield is because it's fake value. REITs, by their structure to save on taxes, have to pay out their net incomes in the form of dividends to shareholders. But then the same REITs turn around and raise capital at the expense of the very shareholders they are paying a dividend to, but an amount equal to or even greater than the dividend itself!"

While the author confined his point about dividends being a mirage to REITs, his reasoning is actually quite similar to anti-dividend charges that have been leveled at dividends for several years here on SA. There are at least two flaws in the reasoning: 1. It is presumed that the dividends, had they been retained by the company, would add to the value of the company in the same proportion that the dividends retained by the company do. and 2.It is presumed that the stock market would therefore value the stock more highly, in direct proportion to the earnings not paid out as dividends.

Source: Seeking Alpha

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