Investing in real estate investment trusts (REITs) can help you generate passive income, but how much do you need to invest before you retire? A REIT dividend calculator can help you answer that question. These calculators let you input a few details about your REIT positions and create projections based on how many shares you want to acquire in the future. You can walk away from a REIT dividend calculator knowing how much you need to retire and can run additional calculations anytime you desire. This article outlines how these dividend growth calculators work and how to get started.
What Are REIT Dividends?
REIT dividends are payouts shareholders receive for holding onto shares. REIT dividends are similar to stock dividends, but real estate investment trusts must give dividends equal to at least 90% of their taxable income. Corporations can give their shareholders much less or avoid dividend payments entirely. You can either accept the REIT dividend as cash or reinvest it into the REIT to obtain additional shares. Reinvesting is the better choice for long-term wealth.
How Do REIT Dividend Calculators Work?
REIT dividend calculators run equations in the background after you input a few data points. Some calculators calculate your cash flow by requesting a yield percentage and the amount of capital you want to invest. Other REIT dividend calculators let you calculate how many shares of a REIT you need to reach a passive income goal. Some REIT dividend calculators have several of these capabilities, so you can get everything you need from one calculator.
Formula for Calculating Dividends Without a REIT Calculator
A dividend growth calculator focused on REITs will do all of the necessary equations and problem-solving for you. But it is good to know how the numbers work in case you want to calculate dividends without using an online calculator. Knowing how the math works can also strengthen your investing skills. You can use a REIT dividend calculator as a guide rather than relying on it. Here is the formula for calculating dividends even if you do not have a REIT calculator:
(Invested Capital) x (Target Dividend Yield) = Dividends
If an investor puts $5,000 into a REIT with a 4% yield, here’s how the calculation would play out:
$5,000 capital x 4% yield = $200
The $200 represents your annual dividend payment. You can increase the total return by investing more money or seeking assets with higher yields. Some REITs will do the work for you by raising the dividend every year.
4 Simple Steps for Using a REIT Dividend Calculator
A REIT dividend calculator can help you plan for the future and know how much you need to retire early. You can follow this simple four-step process to use a REIT dividend calculator to accelerate your path to financial independence.
Find a REIT Dividend Calculator Online
You will first have to find a reputable REIT dividend calculator. Once you find the right calculator, you can proceed with the following steps.
Input Your Initial Investment
Each REIT dividend calculator lets you provide an initial investment. You can have this number represent the capital in your entire portfolio or the amount of funds you want to invest in a REIT you do not yet own. Some REIT dividend calculators let you enter how many shares of a REIT you want to acquire and the price per share.
Input Dividend Per Share
The annual dividend per share gives investors a better idea of how much cash flow they can expect. Getting this number right is critical for the calculation. Investors should review a REIT’s dividend history to make sure they provide accurate information when putting it in the REIT calculator. Being a few cents off can significantly skew the calculation if you stretch it out to 20 or 30 years. Some REIT dividend calculators take a simpler approach, letting you provide your initial investment and desired yield. Under this format, you would not have to provide a value for the dividend per share.
See Your Projected Amount
After inputting those numbers, the REIT dividend calculator will get to work and reveal the projected cash flow and returns. You can get a better gauge of how much you can earn if you follow a buy-and-hold approach. REIT dividend calculators also let you include returns you can get from reinvesting. This feature lets you see the difference in total returns if you stop investing versus setting up REIT dividend reinvestments.
5 Benefits of Reinvesting Real Estate Dividends
Reinvesting real estate dividends has numerous benefits. You can toggle reinvestments on and off in a REIT calculator to see how your earnings would change, but here is a more comprehensive explanation of why reinvesting is useful for every investor:
- Reinvestments increase the number of total shares: The more shares you have, the more dividends you receive every quarter.
- Those shares can pay higher dividends next year: REITs must distribute 90% of their taxable income to shareholders. If the REITs grow, your annual dividend payout per share will increase as well.
- Consistent investments: Reinvestments let you capitalize on dips and even grow your portfolio when the REIT is gaining momentum. If you do not have much left over after expenses, reinvesting still lets you grow your portfolio.
- The reinvestments will snowball and help you stay on top of inflation: Inflation won’t be at 8% forever, but the Federal Reserve accepts 2% year-over-year inflation. If that level is reached, it’s still important to stay on top of it, so you don’t lose purchasing power. Reinvestments help you do that.
- You make more money by reinvesting: This benefit is the bottom-line benefit of reinvesting. If you grow your positions, you benefit from dividend payments and potential appreciation. Every investor wants to make more money, and reinvesting in worthwhile assets is a time-tested way to achieve that goal.
Using REITs to Get Closer to Retirement
REITs can provide stable dividend payments and appreciation potential for investors. These assets have higher yields than most stocks and can complement other efforts you use to expand your capital. REIT dividend calculators are useful resources that help you determine how much you need to invest to reach any annual passive income goal. Check out more REIT information from Benzinga at any time.
What is a good dividend yield for a REIT?
You can find REITs that have dividend yields over 5%, but a dividend yield is only as reliable as the underlying asset. Focus on acquiring great REITs with desirable assets and then look at dividend yields.
Why is dividend yield important?
Dividend yield is important because it informs you on how much cash flow you receive from your capital.
Are REIT dividends worth it?
REIT dividends are typically higher than stock dividends and can help investors achieve their portfolio goals.
About Marc Guberti
Marc Guberti is an investing writer passionate about helping people learn more about money management, investing and finance. He has more than 10 years of writing experience focused on finance and digital marketing. His work has been published in U.S. News & World Report, USA Today, InvestorPlace and other publications.