What REITs Are, and Where They Stand
A REIT (real estate investment trust) is a company that owns income-producing property, such as apartments, warehouses, cell towers, shopping centers or casinos. In exchange for not paying corporate income tax, it must pay out most of its taxable income as dividends. That rule is why income investors own REITs.
VNQ, the Vanguard Real Estate ETF, is the broad basket of U.S. REITs. Like other income assets, REITs are sensitive to interest rates. When bond yields rise, a REIT's dividend has more competition.
Over the five years to Nov 12, 2026, REITs lagged badly. VNQ returned +6.8% in total, while SPY returned +73.3%. VNQ's total-return index has only just gotten back to its Dec 31, 2021 high.
In 2026 REITs have finally kept pace: VNQ is up 12.1% year to date versus 11.9% for SPY. They did it even though the 10-year Treasury yield rose from 4.08% a year ago to 5.10% on Nov 12. That run is why the “REITs are cheap and the rally is just starting” argument is everywhere. We ran two tests on it.
Test 1: Cheap Compared With What?
VNQ's trailing 12-month dividend yield is 3.53%. Its own 5-year average yield is 3.78%, and its 10-year average is 3.92%. On yield, then, VNQ is a little more expensive than its own history, not less.
Today's yield sits around the 22nd percentile of VNQ's month-end readings since late 2005. A lower yield means investors are paying more for each dollar of dividends.
One nuance is worth stating plainly. Professional REIT analysts often measure value with an “implied cap rate,” which is property income divided by the value of the whole company, including its debt. On that measure, REITs are widely described as cheap versus history. That measure and the dividend yield can disagree. We can't reproduce the cap-rate figure from public price data, so we use the number an income investor actually collects: the dividend yield.
The comparison that matters for income
An income investor who buys VNQ gives up the 10-year Treasury yield. Right now VNQ pays 1.57 points less than the government bond.
VNQ's first full year of dividends was late 2005. Since then, it has never been this negative. The previous low was this September, at −1.49 at month-end. It has been below zero every month since February 2024. Before that, the only stretches below zero were mid-2006 to mid-2007, a few months in 2010–2011, and a handful of months in 2022–2023.
Performance and yield figures are historical and may change. Total return includes price movement and distributions where available. Past performance does not guarantee future results. Yield is not the same as total return.
| Year-end | VNQ trailing yield | 10-yr Treasury | Gap (pts) |
| 2008 | 8.23% | 2.25% | +5.98 |
| 2012 | 3.56% | 1.78% | +1.78 |
| 2016 | 4.82% | 2.45% | +2.37 |
| 2020 | 3.93% | 0.93% | +3.00 |
| 2021 | 2.56% | 1.52% | +1.04 |
| 2022 | 3.91% | 3.88% | +0.03 |
| 2023 | 3.95% | 3.88% | +0.07 |
| 2024 | 3.85% | 4.58% | −0.73 |
| 2025 | 3.92% | 4.18% | −0.26 |
| Nov 12, 2026 | 3.53% | 5.10% | −1.57 |
The widest positive gap came in March 2009, at +9.58 points. VNQ yielded 12.29% that month, against a 2.71% 10-year.
