As investors, we need to ensure that REIT’s growth and sustainability of dividend payouts is of key concern. One way is to look at its AFFO payout ratio which measures the percentages of its free cash flow a REIT needs to use to pay its common stock dividend. Normally th AFFO payout ratio is around 80% to 90%. Too overly high a AFFO payout ratio say above 100% might be a warning sign as a REIT cannot pay out more cash than it takes in perpetually. Is the high payout ratio temporary or is it because management mishandles the company?

Like any type of companies, we need to watch the financial heath of the REIT particularly watch out for its gearing ratio. Refer to my article on management needs to be prudent with its capital management.

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