If you're looking for income stocks to supplement your Social Security income, there are two basic things you should focus on -- stability and growth. You want stocks with stable revenue streams that pay good dividends, and that have a high likelihood of increasing their dividends over time. One of the best places to find stocks like this is in the real estate sector, and here are two that you may want to consider.
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The largest real estate company of all
Mall REIT Simon Property Group (SPG 0.96%) is the largest real estate investment trust in the market, with more than 200 mall properties totaling about 184 million square feet.
Many investors are reluctant to invest in retail of any kind, and malls in particular. And it makes sense. There have been several high-profile retail bankruptcies in recent years, and many other retailers are struggling to survive. Plus, too many people have an abandoned (or close to it) mall nearby.
However, Simon's competitive advantage is its willingness to continuously adapt to changing consumer trends and to embrace technology as a part of its strategy. For example, Simon's "Premium Outlets" brand is growing in popularity, and the company is adding the newest retailers, and dining options to its properties. Simon's malls also offer modern amenities, such as free Wi-Fi and valet parking, to name a few examples.
It takes money to make money, and Simon isn't afraid to invest in its future success. To date, the company has completed redevelopment projects on about half of the malls in its portfolio, with another 29 under way as I write this. With $7 billion in available liquidity and a solid balance sheet, Simon has a competitive advantage when it comes to its ability to stay ahead of competitors.
Simon has a long history of strong performance, and over the past year alone, Simon's base rent has increased by 5.4% and occupancy has risen. 2016's FFO was 6.4% higher than 2015's. And, the company just gave shareholders a 9.4% dividend raise -- the payout now represents a 3.8% dividend yield. To sum it up, Simon still has room for growth, and could provide the growing income stream you need in retirement.
Healthcare could be the fastest-growing part of the real estate sector
As I alluded to in the last paragraph, a growing income stream is of paramount importance to Social Security recipients. After all, that's why Social Security benefits are adjusted upward to compensate for inflation. Perhaps the best way to achieve growing income in real estate is through healthcare properties, and HCP (DOC 1.21%) is my current favorite for the long-term.
I've referred to this company as "the new HCP" because of a recent portfolio shake-up. After dismal results from its HCR ManorCare properties, HCP decided to spin these off into a newly created REIT known as QCP, and to focus on predictable, private-pay healthcare properties going forward. The company now owns about 800 properties, with major concentrations in senior housing, medical offices, and life science facilities.
In a nutshell, the U.S. population is aging rapidly, and the 65-and-older age group is expected to roughly double over the next 35 years or so. Since older age groups use healthcare services more, this is expected to create a surge in demand -- which should especially benefit senior housing, HCP's bread-and-butter.
Image Source: HCP.
In addition, healthcare real estate is an inherently defensive asset for two main reasons. First, most healthcare properties are leased on a long-term net-lease basis, which minimizes turnover and provides stability during tough economic times. Second, healthcare is a non-discretionary type of commercial property. During a recession, people can stop going to the movies and eating out, but they still need access to high-quality healthcare.
As would be expected, HCP cut its dividend in 2016 as a result of the spin-off. After all, there are now fewer properties in HCP's portfolio that are generating income, so a lower payout is a natural result. Before that, however, HCP had a 25+ year track record of consecutive dividend increases, and now that the company's least-stable assets are out of the picture, I fully expect that to continue going forward. This stock and its 4.9% dividend yield could be a great income investment for decades to come.
