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NEW YORK ( TheStreet) -- I've been meaning to take my younger kids to see Man of Steel, the latest Warner Brothers movie that is dominating the box office, with nearly $400 million in sales in 12 days (since the release). As the first Superman sequel in seven years, Man of Steel has become a global box-office smash that has taken the fictional super hero from a 1933 comic book character to a legendary worldwide icon, with powers used to benefit all of humanity.
For dividend investors, there is another planet we call REIT-dom and these characters, real estate investment trusts, have powers that are inspired by the forces of nature we call dividends. Now it's true that REITs have been around for more than 50 years, so the success of the most powerful asset sector is rooted in the sustainability of the stalwart forces we call income.
Much like Clark Kent (also a journalist like the Intelligent REIT Investor), REITs enjoy extraordinary powers that are unique compared to any other security. As a force of law, dividends must payout 90% of their taxable income in the form of dividends and that special power has enabled investors to benefit from one of the most supernatural forces on the planet: Compounding. As Albert Einstein once said, "Compound interest is the eighth wonder of the world. He who understands it, earns it ... he who doesn't ... pays it."
So if compounded interest is the eighth wonder of the world, REITs could be the ninth.
The compounding effect for a REIT simply allows for a dividend investor to turn a small amount of money into a substantial sum and the longer the compounding effect, the more profits you earn, over time. Because REITs pay out considerably higher dividends, vs. other securities, the compounding principle allows an investor to grow his or her portfolio and achieve magnified results and exceptional performance.
Owning REITs, which grant you the special power to compound dividends, is important to building a portfolio that is durable and sustainable. The consistency in dividend performance is a true measure of risk control; conversely, being able to maintain and grow dividends is the mark of an intelligent investor. As explained by economist and value investor Ben Graham (in
The Intelligent Investor):
"One of the most persuasive tests of high-quality is an uninterrupted record of dividend payments going back over many years. We think that a record of continuous dividend payments for the last 20 years or more is an important plus factor in the company's quality rating."