Higher REIT yields look tempting, but tax treatment changes the math. Here is the complete comparison to help you allocate wisely.
4-8%
Typical REIT yield
2-4%
Typical dividend stock yield
0.5
REIT-to-stock correlation
| Feature | REITs | Dividend Stocks |
|---|---|---|
| Typical Yield | 4-8% | 2-4% |
| Tax Treatment | Ordinary income (10-37%) | Qualified (0-20%) |
| Payout Requirement | 90% of taxable income | No requirement |
| Dividend Growth Rate | 3-5%/year | 7-12%/year |
| Correlation to S&P 500 | 0.5 (lower) | 0.85 (higher) |
| Inflation Hedge | Strong (rent escalators) | Moderate (pricing power) |
| Best Account | Roth IRA / tax-deferred | Taxable or any |
REITs yield more because they are legally required to distribute at least 90% of taxable income as dividends. Traditional corporations have no such requirement and typically retain 50-70% of earnings for growth, buybacks, or debt reduction.
Top REIT Yields
Top Dividend Stock Yields
Most REIT dividends are classified as ordinary income, taxed at your regular income tax rate (10-37%). Regular dividend stocks usually pay qualified dividends, taxed at the lower capital gains rate (0-20%).
REIT Dividend on $10,000 Income
Gross income: $10,000
Tax (24% bracket): -$2,400
QBI deduction (20%): +$480
After-tax: $8,080
Stock Dividend on $10,000 Income
Gross income: $10,000
Tax (15% qualified rate): -$1,500
No additional deduction: $0
After-tax: $8,500
Note: REITs qualify for a 20% Qualified Business Income (QBI) deduction under Section 199A, which partially offsets the higher tax rate. This deduction is currently set to expire after 2025 unless extended by Congress.
Account Placement Strategy:
Roth IRA: Hold REITs here -- all that high-yield income grows tax-free forever
Traditional IRA / 401(k): Either works -- taxes are deferred regardless
Taxable brokerage: Hold dividend stocks here -- qualified dividends get lower rates
REITs have a correlation of roughly 0.5 to the S&P 500, meaning they often move differently from regular stocks. Adding REITs to a dividend stock portfolio provides genuine diversification, not just more of the same.
When REITs Shine
When Dividend Stocks Shine
Blending REITs and dividend stocks for optimal income + diversification
Dividend Stocks (SCHD/VYM)
Qualified dividends, growth, lower tax
$60,000 (60%)
~3.2% yield = $1,920/yr
Equity REITs (O, STAG, VICI)
High yield, real estate exposure, inflation hedge
$30,000 (30%)
~5.0% yield = $1,500/yr
REIT ETF (VNQ)
Broad REIT diversification, 160+ holdings
$10,000 (10%)
~3.8% yield = $380/yr
Total Annual Income
$3,800
Blended Yield
3.8%
Monthly Income
$317