Income investors love real estate investment trusts (REITs) because of the high dividend yields they offer. And most REITs now have higher than normal yields because of the rising interest rates the Federal Reserve has initiated this year to combat inflation and the subsequent price declines of the entire REIT sector as a result.
But investors need to make sure that the higher yields are well covered by the REIT’s quarterly funds from operations (FFO) so that the same or better dividend can continue to be paid into the future. If the quarterly FFO cannot support the dividend, the company begins to bleed cash and may have to cut the dividend going forward.
