Dividend Stocks vs. Rental Properties

Investments in dividend-paying stocks and rental properties create returns based upon a principal investment. Each investment opportunity has its own benefits and risks that make choosing one over the other -- or even choosing a mixture of the two -- a decision dependent on your own investing style and goals. Dividend-paying stocks may be easier investments to make, but investments in rental property could yield higher returns in the long-term.

Rental Property

Investments in rental property come with tax write-offs and deductions, including deductions for interest payments, property maintenance and travel expenses, according to Nolo.com. A rental property's profitability is determined by how much you owe on its loan, the amount it can command in rent and any costs associated with maintaining it. Once you have repaid the loan, the amount of money a property will earn for you increases significantly. A real estate investment can potentially yield substantial long-term returns, though its profitability is tied to several unpredictable factors, such as maintenance, finding someone to rent the property and fluctuations in the real estate markets.

Dividend Stocks

Stocks that pay dividends return a percentage of their earnings to stockholders every quarter. Investors who invest in a stock solely to collect dividend payments take a long-term stake in the company and are not interested in short-term fluctuations in the stock's share price. Stocks that pay dividends fair better in a turbulent economy, according to Jim Jubak of MSN MoneyCentral, which makes their shares ideal picks for long-term investors. Large companies such as Intel, AT&T and Kraft Foods pay dividends ranging from three to six percent annually, according to the Money-Zine website. Dividend payouts vary with the company's profitability.

Return on Investment

Estimating the potential return on investment for dividend stocks and rental properties will help you determine the best way for you to invest your money. To calculate return on investment (ROI), subtract the total cost of making an investment from the total profit it returns over a period of time. Divide the difference by the cost of making the investment to yield the ROI, which is expressed as a percentage. The investment with the best ROI -- either from past performance or based on future earnings projections -- might be the best investment for you to make. Remember, though, that past performance does not guarantee a profitable investment.

Making the Call

Deciding whether to invest in dividend stocks or rental properties depends upon your expected ROI, as well as how much time you have to devote to maintaining your investments. Real estate can be a time-intensive investment, but the additional work can pay off; dividend stocks require minimal work but may not yield as high of a return as real estate. Choosing how to invest your money also depends upon your risk tolerance. Dividend-paying stocks and real estate investments have unique risks that you should consider before making any investment.