Creating passive income, even at the most basic level, should be part of every investor’s portfolio goals. Dividend-paying stocks, exchange-traded funds (ETFs), and bonds are what many investors flock to when looking for passive income streams, but they’re not the only options. Real estate can be a great avenue for creating consistent, reliable monthly income.
Real estate investment trusts (REITs), in particular, are fantastic passive income investments because they allow investors to participate for less money, time, and risk than traditional real estate investments. If you’re looking to earn regular passive income, here are three great REITs to consider.
The star of dividend investing
Many consider REITs to be the stars of dividend investing thanks to the nature of the REIT structure. For a REIT to enjoy certain tax benefits, such as paying zero corporate tax, it must meet strict criteria. For example, it must derive the majority of its income from real estate and real estate-related securities, such as mortgages, and pay 90% of its taxable income in the form of dividends.
These qualifications often lead to higher dividend yields compared to traditional dividend-paying stocks. Since most REIT dividends increase as the portfolio and company performance grows, the passive income potential of a REIT is endless.
1. Domestic Commercial Properties
Domestic commercial properties (NNN 1.82%) is a single-tenant, net-lease REIT that leases approximately 3,200+ commercial properties to long-term tenants in 48 states. Favorable net leases transfer the responsibilities of owning and maintaining the property to the tenant for a period of 15 to 20 years. Additional rent increases are built into the lease, creating an extremely reliable and consistent revenue stream for the business.
Its single-tenant business model, targeting non-institutional tenants and national operators in high-traffic areas of certain markets, has proven extremely successful over the years. Its occupancy rate has never fallen below 96.4% in the nearly four decades of operation and its operations, despite the impacts of the pandemic, are better than ever. In the first quarter of 2022, he collected 99.6% of his rents while the occupancy rate stood at an impressive 99.2%.
The company is also in excellent financial condition with $53.7 million in cash with no debt maturing before 2024, plus a low debt-to-earnings before interest, tax, depreciation and amortization (EBITDA) ratio of 5.3 times, which is in line with the REIT average. Plus, its dividend is hard to beat. National Retail Properties has increased its dividend for 32 consecutive years, making it one of the few Dividend Aristocrat stocks and the third longest of any public REIT.
Market volatility and concerns about the effects of the recession on the retail sector have caused stock prices to fall 14% this year. However, this is to the benefit of investors. Its price is trading favorably to its performance and its dividend yield is now over 5%.
2. Property income
Real estate income (O 1.76%) is also a net lease REIT that primarily leases single-tenant commercial properties in addition to a smaller but diverse range of properties like hotels, offices and vineyards, to name a few. Its tenants are in almost every area imaginable, with institutional-grade tenants like Walgreens, 7-Eleven, General dollarWhere fedexin addition to many others.
This giant REIT, which holds an interest in just under 11,300 properties across the United States and Europe, is also a dividend aristocrat, having increased its dividend 115 times in the 25 years since its introduction in stock Exchange. In addition, it pays its dividends monthly. It’s also one of the only A-rated retail REITs, and it boasts a healthy balance sheet with a low debt-to-equity ratio of around 5.4 times its EBITDA.
Market volatility hasn’t hit Realty Income as hard as many of its REIT peers. Right now, its stock price is around 12.5% below its recent high. However, its price is still favorable with its dividend yield of 4.4%, which is in line with its historical yield range.
3. WP Carey
WP Carey (WPC 0.99%) is a diversified REIT that owns and leases a multitude of different real estate properties, including industrial, self-storage, office and retail properties, among a few others. This diversification of assets provides the company and its investors with a hedge against market volatility, because if one industry sees rents compress, another may see rents rise. This balance between industries helps the company maintain steady growth despite short-term headwinds in different industries and reduces its exposure to risk.
As of Q1 2022, WP Carey has an interest or ownership in just over 1,300 net leasehold commercial properties in the US and Europe and boasts an impressive 98.5% occupancy rate. It is in the process of completing a merger with Corporate Property Associates 18 Global (CPA 18) – which is expected to add approximately $2 billion in assets to its portfolio by the end of the year. Its balance sheet is healthy, with a debt ratio just above the REIT average at 5.5 times its EBITDA.
The company is not yet a dividend aristocrat. There is only one year left until we hit the 25-year mark for consistent dividend increases. Fortunately, its low payout ratios mean it is well positioned to maintain dividend growth without compromising performance. Surprisingly, WP Carey is one of the few REITs that are rising despite today’s bear market. Despite a slightly higher share price, its dividend is still above 5%, within the historic range.
These three REITs can deliver consistent income backed by a proven track record of portfolio growth and dividends while providing exposure to the real estate market. If passive income is your goal, these 3 REITs are a surefire buy.