Look to Healthcare REITs for Income

Comments (3)

  1. Marty Welsch says:

    What do you think of Ventas (VTR)?


  2. Matt Peters says:

    Because of depreciation, (a required deduction from income which is not actually an expense) REITs can continue to pay dividends in excess of income. Cash flow can exceed income without an increasing debt.
    It should be easy for a REIT to pay out 95% or more of income and keep its income tax exempt. Real estate often generates higher cash flow than income because of depreciation.


    Martin Hutchinson Reply:

    Depreciation is indeed a real charge for REITs; eventually the buildings will fall down. REIT dividends are thus not fully sustainable if they exceed the income level. In practice, a modest excess of dividends over earnings is fine, but at some level — perhaps 2/3 of dividends covered by earnings — it becomes unsustainable and a return of capital.


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