Many investors like real estate investment trusts (REITs) for dividends. However, you may not need to concentrate your portfolio in companies like Mirvac Group (ASX: MGR) if income is what you’re after.
Why you may not need ASX REITs for dividends
The Aussie REITs are required to pay out above 90 per cent of their earnings each year as part of the trust structure. That has historically made them strong ASX dividend shares which income investors love.
However, there are plenty of other ASX shares that have strong yields over and above the ASX REITs.
I think there are other ASX dividend shares out there outside of the real estate offerings which means investors have plenty of options.
What if I want to invest in real estate?
Investing in ASX REITs makes more sense if you want an allocation to real estate. Buying private real estate is expensive in many parts of the country and comes with significant tax and transaction costs.
That means shares like Scentre Group (ASX: SCG) could be good exposure. However, unlike private real estate these investments don’t receive favourable tax treatment, which is a big negative.
There’s also the argument that you get plenty of exposure to ASX REITs via a broad market exchange-traded fund (ETF). Buying something like BetaShares Australia 200 ETF (ASX: A200) provides exposure to nearly all the same investments as the S&P/ASX 200 Index (ASX: XJO).
That includes your favourite ASX REITs alongside even more diversified exposure to other sectors.
If you want targeted exposure then ASX REITs can be your friend. You can choose to just invest in commercial, residential, office, retail and many more real estate areas based on your choices.
However, if you’re just looking for a strong dividend, I don’t think you need to look only at REITs.