Investors may be inclined to pick real estate investment trusts (REITs) based largely on the most impressive dividend yield. However, some of the most compelling options may not necessarily offer the best distributions; rather, they may be those that can build rental income, asset value, and cash flow at a faster pace than their borrowing costs.
In a high-interest-rate environment where Treasury yields rise, REITs contend with higher financing costs as well as investor expectations of improved returns. It can be helpful to compare a REIT's dividend yield with the yield on a (nearly) risk-free Treasury bond.
