Overview
- The Federal Reserve cut the target funds rate to 4.00%–4.25% in September and signaled additional reductions before year-end.
- Broad REIT benchmarks yield more than typical U.S. stocks, with the FTSE NAREIT All REITs Index at about 4.2% and VNQ near 3.8% versus roughly 1.2% for the S&P 500 and around 4.1% for the 10-year Treasury.
- By law, REITs generally distribute 90% of taxable income as dividends, supporting higher yields but creating a tax profile where NAREIT reports 78% counted as ordinary income in 2024.
- Lower rates can lift REIT valuations and profitability through cheaper refinancing, yet dividends remain vulnerable in downturns, reinforcing the case for diversification across payers and subsectors.
- Realty Income illustrates the income case with a roughly 5.3% yield, a three-decade record of payout growth, 98.6% portfolio occupancy, and an average remaining lease term near nine years.