The sagging economy has sent the prices of real estate investment trusts into a nose-dive, but REIT owners and particularly new REIT buyers haven't felt the strain because falling prices have triggered higher dividend yields.

REIT dividend payouts have been sky-high and sacrosanct for years because for years a REIT has been required by law to pay out to shareholders 90 percent of its pre-tax income to keep from being taxed itself.

But the cash dividend yields of some REITs, maybe even all of them, are going to take a hit because of a new tax ruling that infuses much needed cash into REIT balance sheets.

The Internal Revenue Service in December decided to allow REITs to satisfy the 90 percent rule by letting them to pay as much as 90 percent of the 90 percent in stock and the remaining 10 percent in cash. So shareholders will be loaded up on additional stock holdings and will get less in cash. Not so bad? Read on.

Tax is still due on 100 percent of the dividend. So that extra stock, though virtually meaningless as a booster because it's like a no-win stock split, could mean that shareholders face a tax bill bigger than their cash payout.

Under the IRS guideline, so long as the REIT provides its shareholders with a choice between cash or stock (and as long as at least 10 percent of the total dividend is available in cash) the entire dividend distribution is treated as a distribution of cash for the purpose of the tax rule to qualify as a REIT.

But down the line, the move could benefit REITs because it gives them extra cash at a time when their traditional funding sources have dried up -- such as unsecured bond financing and the commercial mortgage-backed securities market.

By replacing cash for stock could mean a saving of $10 billion for REITs this year, according to the National Association of Real Estate Trusts, the REIT trade association.

But shareholders are protesting the changeover, says Ron Kuykendall. REIT spokesman and for that reason some REITs may back off. At this writing only two of the nine REITs that I have written up have engaged in the changeover -- Duke Realty and Kimco Realty. They will probably make the change in the second quarter. One other REIT, struggling ProLogis Trust also seems a likely candidate.

To remind readers, here are the nine REITs that I have written up and their price and cash dividend yield as of Feb. 28. I'm also providing the phone numbers in case anyone wants to check on the payout status. Also, current financial information on each can be found by entering the trading symbol on finance.yahoo.com.

Duke Realty Corp. (DRE), office and industrial buildings, $6.90 a share, dividend yield 14 percent, 1-317-808-6000.

Entertainment Properties Trust (EPR), movie theaters, $14.91 a share, dividend yield 22.7 percent, 1-888-377-7348.

Equity Residential Trust (EQR), residential buildings, $17.60 a share, dividend yield 10.7 percent, 1-312-474-1300.

HCP Inc. (HCP) medical care facilities, $18.27 a share, dividend yield 9.8 percent, 562-733-5100.

Kimco Realty (KIM), shopping centers, $8.85 a share, dividend yield 19.4 percent, 516-869-9000.

ProLogis Trust (PLD), commercial storage facilities, $5.79 a share, dividend yield 17 percent, 303-567-5000.

UDR Inc. (UDR), apartments, $7.91 a share, dividend yield 16.4 percent, 720-285-6120.

Washington REIT (WRE), residential properties, $17.15 a share, dividend yield 10.1 percent, 301-984-9400.

Weingarten Realty (WRI) shopping centers, $11.29 a share, dividend yield 18.4 percent, 713-866-6000.

You can see that the dividend yields were sky-high at the end of February, but as I said, the REITs that chose the new rules will be paying out less. But even drastic cuts will still result in good yields in some cases.

Despite this disappointing turn of events, I still believe that REITs -- two or three, at least -- are a sensible addition to anyone's portfolio.

Perhaps the cash infusion from a one-year suspension of the 90 percent cash rule will boost REITs enough so that the rule will not be extended.

Cliff Pletschet's Personal Finance column appears Sunday and Monday. Send general-interest questions to him at P.O. Box 28147, Oakland, CA 94604 or e-mail him at cliffpletschet@sbcglobal.net. Give your name, city and the question in brief form. To subscribe to his quarterly newsletter, Investment Educator, send $20, made out to Personal Investment Education, to the above address. Also, visit our Web site, www.investment-educator.com.

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