The dividends paid by REIT stocks to shareholders account for two-thirds of the investments’ total return?

Since 1981, REITs, as represented by the NAREIT Equity REIT Index, have earned an average annual total return of 13.47 percent. As illustrated in the chart below, 8.52 percentage points, representing 63 percent of the average annual total return, have come from dividends paid to shareholders. The healthy dividends of real estate stocks help make them less volatile than other stocks and provide income and stability to an investor’s overall portfolio.

What do REIT dividends mean to shareholders in actual dollars? As shown in the bottom chart, a $1,000 investment in a broadly diversified portfolio of REIT stocks in December 1981 would have increased to $2,343 in 2002, if the investor chose not to reinvest the dividends. However, if the $1,000 was invested in the same portfolio of REITs, with the dividends reinvested, the investment would be $12,765 today—a substantial return on the original investment.