I like real estate investment trusts, provided that they are invested in some kind of tax-advantaged vehicle. This is because the cash payouts from REIT investments often comprises half or more of your total return, and the attractiveness of the investment relies upon letting the dividends reinvest undisturbed. Because the U.S. Congress decided in the early 1990s to exempt REITs from taxation at the trust level, any dividend paid out can be taxed at the maximum 39.6% rate rather than the maximum 23.8% rate that you see with qualified dividends from traditional corporations.
In a taxable account, taxation on dividends can eat up a quarter of your total returns. That creates a high hurdle–any REIT investment contemplated in a taxable account would have to be extremely attractive compared to your best idea among c-corporations.
Take something like Public Storage. I would love nothing more than to stuff a giant block … Read the rest of this article!