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Here's an example of how crazy markets can be.

I wanted to see an historical comparison of the dividend yields on REITs versus the yield on the S&P 500. REITs are real estate investment trusts. To keep their tax status, REITs have to pay out nearly all their income as dividends. As a result, REITs usually have high dividend yields.

I looked at the Vanguard REIT Index Fund (VNQ) as a proxy for the REIT sector (it's not perfect but it works for our purposes). I then looked at the trailing dividend yield and compared it with the Vanguard 500 Index Fund (VOO).


(Click to enlarge)

During the tech bubble when no one was interested in dividends, the REIT sector as a whole was offering yields of more than 8.5% while the S&P 500 was yielding less than 1.5%. That's insane but the conditions lasted for years. It took a massive real estate rally to push REIT yields below 5%, and even than took six years.

We've gone from one extreme to another. Only now does the yield difference look appropriate.

The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.

Source: Comparing REIT Yields With the S&P 500