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Posted: Mon Apr 09, 2012 12:27 am
by Jellybean
Can anyone explain to me the downside of an REIT like ARR that pays such a high dividend? Sorry if I posted this under the wrong heading!
Posted: Mon Apr 09, 2012 1:16 am
by RelicO
Plenty of risks involved, check out this page
http://www.armourreit.com/faq.html
fifth question down...
Also note here
http://finance.yahoo.com/q/hp?s=ARR&a=1 ... f=2012&g=v
that the distributions were cut from last year.
Perhaps other folks who are into leveraged income could chime in here as well...
Posted: Mon Apr 09, 2012 1:17 am
by BennKar
Perhaps someone can give better details, but here is a few things.
1)Dividends from REITS are not qualified dividends, so if you have a high marginal tax rate, you'll pay more in taxes than a regular dividend. For most people this means that these are better in things where you avoid taxes, like Roth IRAs (btw, I have about $2,000 of REITS in my Roth IRA).
2)REITs do not have to pay income taxes as long as they pass through at last 90% of their earnings as dividends. So if their income falters the dividend will drop dramatically.
REITS are supposed to be very interest rate sensitive. This means if interest rates are allowed to rise, the dividends could drop quickly. Since the Fed says rates will stay low at least until 2014, they may be safe until them.