Just because a dividend increases, doesn’t mean your investment is any better.
This is not what I wrote or intended.
I wrote, “when bond yields go down, the relative value of REIT dividends go up”
There are certainly some horrific cases where a dividend goes from 3-4% to 9-20% only because the associated stock tanks in value. This is not related in any way to the point I have made.
My point was that an investor is willing to pay more for an income stream that the REIT produces when bond rates have fallen.
Hopefully an example will solidify this …
Suppose you are out shopping for an investment and the 10-year bond pays 5.5% and a commercial REIT pays $6.50 in dividends and costs $100. Now, suppose that the 10-year bond yield goes to 4.5%. The $6.50 dividend in the REIT is now significantly more valuable. The investors that paid $100 for the REIT (1% spread over treasury) might be willing to pay $110 (1.5% spread over treasury) or even $118 (1% spread) .
