Investing in real estate is widely considered an excellent way to generate passive income. There are many ways to do this, even for those who don’t have a lot of money to get started. One of the easiest is to invest in a real estate investment trust (REIT). These companies own income-producing real estate and pay a portion of that income to investors through dividends, making them extremely passive real estate investments.
REITs are very cheap investments. You can often buy shares of a high-quality REIT for less than $100. Three REITs with stellar dividend-paying records are Real estate income (NYSE:O), Agree Real Estate (NYSE:ADC)And Vici properties (NYSE:VICI). They must offer investors an attractive and growing income stream that will last a lifetime.
An income-generating juggernaut
Realty Income has done a masterful job of paying dividends over the years. The diversified REIT (retail, industrial and gaming properties) recently ranked 647th consecutive monthly dividend. That payment was 2.1% higher than the previous levelmarking the 107th consecutive quarterly increase.
The new payment level boosted Realty Income’s dividend yield upwards to around 5.8% at the recent share price. That means investors would earn about $58 in annual dividend income for every $1,000 they invest in the REIT. However, with the stock price recently hitting the mid-$50s, investors don’t need a lot of money to generate passive income from real estate income.
Realty Income should be able to continue increasing its dividend going forward. The company estimates that it can grow its adjusted funds from operations (FFO) per share by approximately 2% per year through a combination of rental growth and new investments financed with cash retained after dividend payments. It can increase its FFO growth rate by about 0.5% per share each year for every $1 billion of externally financed acquisitions it completes (that is, those financed with stock sales and additional debt). Realty Income has historically acquired billions of dollars of income-producing real estate every year. That drives its belief that it can grow its adjusted FFO per share by about 4% to 5% annually. That will provided with it the incremental cash flow to further increase the high-yield dividend.
Plenty of room to grow
Agree Realty is a retail REIT focused on low-risk real estate. It owns detached retail properties net rented or land rented to quality retailers (68.8% of rent comes from investment grade tenants). These rental structures and the credit quality of its tenants allow Agree Realty to collect very stable rental income.
The REIT pays investors about 75% of its fixed rental income through a monthly dividend, which currently yields about 5%. Agree Realty has done a fantastic job growing the dividend. It has delivered a compound annual dividend growth of 5.6% over the past decade.
Agree Realty’s payout should continue to rise. The REIT has a strong balance sheet, giving it a lot of financial flexibility to continue investing in income-producing retail properties. It has also built relationships with financially strong retailers, which provide it with a steady stream of new investment opportunities. The company’s existing partners own more than 165,000 properties that Agree Realty could acquire in the future. That gives the REIT (which currently owns fewer than 2,200 properties) a long growth runway.
Peer-leading dividend growth
Vici Properties is a REIT focused on experiential real estate, such as casinos and entertainment centers. It rents these properties to the operators on the basis of long-term net lease agreements. Those agreements provide it with terribly stable and growing cash flow as rental prices escalate.
The company pays out approximately 75% of its adjusted FFO through a dividend currently which yields more than 5.5%. Vici Properties has increased its payout at a comparable compound annual rate of 7.9% since 2018 (several times faster than the peer group average of 2.2%).
Vici Properties should be able to continue increasing its payout in the future. It collaborates with companies that operate experience real estate, that it offers a steady stream of new investment opportunities. The REIT often acquires a portion of an operator’s real estate and is given the option to purchase more in the future. Vici also finances development projects and has the option to purchase these properties in the future. The company has a strong balance sheet, giving it the flexibility to continue making new investments.
Sustainable dividend stocks
Realty Income, Agree Realty, and Vici Properties have done a phenomenal job paying dividends over the years. The REITs focus on lower-risk properties that generate steadily increasing rental income. They also have strong balance sheets. This has allowed them to expand their portfolios and pay growing dividends, which should continue into the future. That makes them great stocks to buy for those looking for long-term income streams.
Should you invest €1,000 in real estate income now?
Consider the following before purchasing shares in Realty Income:
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Matt DiLallo has positions in Realty Income and Vici Properties. The Motley Fool holds positions in and recommends Realty Income and Vici Properties. The Motley Fool has a disclosure policy.
Do you have $1,000? Here are 3 great high-yield dividend stocks to buy now for a potential lifetime of passive income. was originally published by The Motley Fool
