I have a fairly large collection of dividend stocks in my portfolio, including seven real estate investment trusts (reits). That means I draw both qualified and nonqualified dividends, with REIT (nonqualified) income treated as regular income for the most part in the U.S.
But there is one particular feature based on where i own the reits that makes a big difference when i pay my taxes and when i plan for the future. Here is a closer look.
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On my list of reits are realty income ( WKN:899744 -2.25% ), W.P. Carey ( WKN:A1J5SB -1.30% ), federal realty ( WKN:985247 -1.87% ), ventas (WKN:878380 0.48% ), simon property group (WKN:916647 -5.05% ), alpine income property trust ( WKN:A2PVYX -0.37% ) and, thanks to a spin-off from realty income, orion office REIT (WKN:A3C684 -2.80% ).
For example, orion office, a company recently spun off from realty income, has not yet paid a dividend, and alpine, a small net lease REIT that i bought because of its rapidly growing portfolio, i acquired in mid-2021. I also invest in dividends on all my reits, so the number of shares I own increases over time, and so does the income I receive. And as if that wasn't complicated enough, five of the seven have already increased their dividend in 2021.
Rather than try to fully analyze the actual 2021 U.S. Dollar figure, I will give a rough value here based on my current dividends and round the number of shares I own to make it easier for myself.
|REIT||last quarterly dividend||number of shares||full year run rate dividend||account type|
|realty income||0.7395 USD||580||1.715 USD||taxable|
|W.P. Carey||1,055 USD||525||2.215 USD||controllable|
|ventas||0.45 USD||575||1.035 USD||taxable|
|simon property group||1.65 USD||315||2.079 USD||taxable|
|orion office REIT||k.A.||55||0 USD||taxable|
|federal realty||1.07 USD||365||1.562 USD||roth|
|alpine income property trust||0.27 USD||1,390||1.501 USD||roth|
Data source: company financial data and author's calculations.
This is an accurate number, but it's not exactly what I got in 2021 or will get in 2022, for the reasons mentioned above. It's a rough estimate, but one that gives me a solid financial backstop in case disaster strikes. Note that in addition to these reits, I also own a whole series of dividend stocks that add to the total dividends I receive.
The closer i get to retirement and my daughter moving out of the house, the more the need for security dwindles. Therefore, i own federal realty and alpine income property trust in a roth account for which i have paid taxes on the deposit so that i do not have to pay taxes on the money withdrawn from the account or on the income earned within the account. So about 30% of my REIT income is tax-deferred.
I plan to increase this share in the next few years by selling assets on my taxable account and then buying them on my roth account. I'll probably have to pay capital gains taxes, but again, I'm not just building a nest egg, I'm preparing to live off my dividend income. And in the event of a bear market i will definitely take the opportunity to absorb any losses that occur.
A final thought
Investing is a very personal matter, because we all have different goals and approaches that change over time. I am currently in a transitional phase where my working years are getting shorter and I am looking forward to retirement. In about four years, when my daughter graduates from college, my need to protect myself against adversity will be significantly reduced. (since i don't have a mortgage, their college is the only major issue i have today).
Looking at my dividend income from reits and asking where it ends up is becoming increasingly important for my future planning. Maybe I've got things backwards, but I've done them in a way that makes financial sense to me. Maybe my thoughts will help you decide how you want to treat your dividends in your lifetime.
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This article reflects the opinion of the author, which may differ from the "official" recommended position of a premium advisory service of motley fool. Questioning an investment thesis – even our own – helps us all think critically about investing and make decisions that help us become smarter, happier and richer.