A high REIT yield is often the market pricing in a dividend cut, not a mispricing to exploit

Worth studying as a case, because it is the mistake everyone warns about and the mechanics are worth being specific about. Say an investor puts 26k into a single REIT for an 8.9 percent yield, against a sector where most comparable names sit between 3 and 5 percent. The read at the time is usually that the market has mispriced something. What has actually happened more often is that the market has already decided the dividend is not safe. The check that gets skipped is comparing dividend per share to funds from operations per share. Do that and a payout running above what the properties actually generate becomes visible, sometimes for more than a year before the cut. It is a two-line calculation sitting in a public filing, and a high yield number tends to do the thinking instead. In a case like this, four months in the dividend gets cut by roughly 45 percent, and the share price drops about 18 percent the same week, because the yield was the only reason anyone was holding the position. Income and principal move against the holder in the same motion. On 26k that is roughly 4,700 down in price, with annual income falling from around 2,300 to about 1,300. Holding on afterward with no reason besides not wanting to realize the loss is its own separate mistake. The fix is procedural: check the dividend against FFO before looking at the yield at all, and size any single name so one bad call does not carry the whole position.