If you're retired, the ideal stock investments will produce more than enough income for you to live on, while potentially allowing your portfolio to grow in value at the same time. The real estate sector can be a great place to find stocks that fit this description, and these three stocks in particular could be excellent ways to supplement your Social Security income

Company

Symbol

Recent Share Price

Dividend Yield

10-Year Total Return (Annualized)

Realty Income

O

$55.18

4.6%

14.1%

Ventas

VTR

$69.48

4.5%

14%

Extra Space Storage

EXR

$78.00

4%

21.6%

Data Source: TD Ameritrade and author's own calculations. Share prices and dividend yields as of 7/1/2017.

Monthly income and a nice margin of safety

It may seem odd to suggest a retail-related stock given all of that sector's headwinds lately, but Realty Income (NYSE:O) is different. Realty Income is a net-lease REIT with about 5,000 properties. About 80% of the rental income comes from retail tenants, with the remaining 20% from office and industrial properties.

Handing over a payroll check.

Image source: Getty Images.

First, the company's net lease structure minimizes vacancies and provides predictable income. If you aren't familiar, a net lease is typically a long-term (15+ year initial term) agreement that requires the tenant to cover costs such as property taxes, building insurance, and certain maintenance costs. They also tend to have annual rent increases, or escalators, built right in. This creates a growing income stream and minimizes turnover. In fact, Realty Income's properties are more than 98% occupied, and this has never fallen below 96%.

Second, most of Realty Income's retail tenants operate in recession-resistant or e-commerce-resistant businesses. Consider some of the company's largest tenants. Walgreens sells products that people need, which makes the business recession-resistant. FedEx is a service-based business, and is also somewhat non-discretionary. And Dollar General (and other low-price businesses) offer bargains that internet retailers can't match, and often do better in recessions.

As far as dividends go, Realty Income has a 4.6% annual dividend yield that it pays out in monthly installments, making it an excellent choice for investors who rely on income from their stocks to cover living expenses. The company has paid 563 consecutive monthly dividends, and has raised its payout for the past 79 consecutive quarters. And with an average 16.9% annual total return since its 1994 NYSE listing, it's fair to say that Realty Income also provides lots of growth potential.

Healthcare real estate is a defensive, high-income asset

The market for healthcare real estate should grow rapidly over the next several decades, which should add an additional layer of safety to an already-defensive investment. The U.S. population is aging rapidly, and the senior citizen population is expected to roughly double by 2050.

There are several excellent healthcare REITs, but Ventas (NYSE:VTR) is a particularly strong example. The company owns or has an interest in about 1,300 properties, 55% of which are senior housing. The rest are an assortment of medical office buildings, life science facilities, hospitals, and other assets. Most of the company's tenants are dependent on private-pay healthcare revenue, which is generally more stable and predictable than properties that depend on government reimbursements like Medicare and Medicaid.

Based on the current share price, Ventas pays a 4.5% dividend yield, which represents just 75% of expected FFO for 2017, a rather low payout ratio for a REIT. So, between the strong dividend coverage and growing healthcare real estate market, Ventas' dividend looks rather safe and has room to grow.

Self-storage stocks have fallen, and now pay generous dividends

Over the past year or so, interest rate fears have rattled the REIT sector, and oversupply fears have hit the self-storage industry. As a result, most self-storage stocks have significantly underperformed the sector, and the market as a whole.

Extra Space Storage (NYSE:EXR) has fallen by 15% over the past year, and as a result, its dividend now translates to a rather generous 4% yield.

Extra Space Storage owns or has an ownership interest in just over 1,000 storage facilities, and manages another 421 through its third-party management program, which is the largest of its kind in the U.S. For more than a decade, the company has grown revenue at a faster rate than peers, while keeping a good handle on expenses, which has produced a best-in-class net operating income (NOI) growth rate.

Comparison of four largest self-storage REITs.

Image source: Extra Space Storage investor presentation.

Although self-storage is not the most defensive type of real estate, it does have a pretty big margin of safety during tough times. Specifically, the month-to-month lease structure of self-storage facilities makes it easy for tenants to vacate when they need to cut back. However, self-storage properties have remarkably low maintenance and turnover expenses when compared with other property types, which makes it a business that can survive even the worst recessions and remain profitable.

Extra Space Storage's dividend has nearly quadrupled over the past five years alone, so it's fair to say that management has made it a priority to grow its income stream for shareholders. The current dividend rate accounts for just 73% of this year's expected FFO, so I'd be surprised if another increase didn't occur later this year.

Matthew Frankel owns shares of FedEx and Realty Income. The Motley Fool recommends FedEx. The Motley Fool has a disclosure policy.