2 Stocks to Supplement Your Social Security Income

When you're retired, it's not enough to buy income-generating stocks. You need to know that the dividends will continue to arrive quarter after quarter, and that your income is likely to grow over time to help you keep up with inflation.

One of the best places to look for dividends that are not only high but are reliable and have lots of potential for growth is in the real-estate industry. With that in mind, here are two rock-solid real-estate investment trusts, or REITs, that both yield 4% or more per year and are worth a look for retirees looking to supplement their Social Security income.

Image source: Getty Images.

Data source: TD Ameritrade. Stock prices and yields current as of April 26, 2018.

Because living in the dorms is so 20th century

Consumer tastes change over time, and over the past two decades, college students have noticeably shifted their preferences toward off-campus housing options.

American Campus Communities is a real-estate investment trust that has emerged as a market leader in this young and fast-growing segment of residential real estate.

Most on-campus housing options in American Campus Communities' 68 current markets are residence halls built in the 1950s and 1960s. In fact, the median age of on-campus housing options in these markets is more than half a century. In these markets, 78% of students live in other types of housing, but about two-thirds of the off-campus housing supply consists of landlord-run single-family homes and traditional apartment communities.

American Campus Community gives students a third option: modern communities that were specifically designed to meet the needs of college students. These communities have modern technology infrastructure, as well as more student-focused amenities and policies. For instance, in a traditional apartment, you generally aren't on a separate lease from your roommates, but this can be done in student-focused housing.

Not only is American Campus Communities' product far superior to its competition, but it's just as affordable. Outdated on-campus housing costs an average of $722 (shared) or $916 (private) in the company's markets, making the $751 average monthly price tag of American Campus Communities' properties surprisingly affordable.

As I mentioned, this industry is still in its infancy, and there's no shortage of demand for higher-quality student housing. Plus, the company's 4.7% dividend yield represents less than 70% of 2018's expected funds from operations, or FFO (the REIT equivalent of "earnings") -- a rather low payout ratio for a REIT. So, there's no reason to think the income won't get even better over the coming years.

The undisputed market leader in an excellent business

Public Storage is the clear leader in the self-storage industry, as the company is larger than the next three self-storage competitors combined. As of the end of 2017, the company owned more than 2,700 properties, including 2,386 U.S. self-storage facilities.

There's lots to love about the self-storage business. While it tends to be more sensitive to the strength of the economy than many other types of commercial real estate, it also makes money much easier. Public Storage has said that it can break even with just 30% of its properties occupied, and the company currently has occupancy of 93.8% -- so it's fair to say that there's a lot of cushion.

Public Storage grows in three main ways: growth in same-store revenue, acquiring existing properties, and developing new self-storage facilities from the ground up. The latter is relatively new for Public Storage, but it represents the best potential for long-term value creation, and the company is investing considerable resources in its development efforts. In 2017 alone, Public Storage invested $312 million in new properties, and the company says they're "filling up ahead of projection."

However, investors should know that development is also one of the industry's biggest concerns. It's worth pointing out that there are significant oversupply worries in the self-storage industry right now, which is why self-storage stocks have underperformed the rest of the REIT sector recently. Specifically, construction of new self-storage properties in the U.S. has exploded over the past few years -- in fact, more was spent on new constructions in 2017 than during the entire 2010-2014 time period. As Public Storage said in its latest annual report, "when it is cheaper to build than to buy and the return on investment is high, developers will build."

This is likely to be a temporary headwind, and in my view, it creates a nice buying opportunity. However, it could weigh on the industry as long as it persists.

Whatever the market environment is, Public Storage has the advantage of scale and financial flexibility over peers in this extremely attractive business. And, just like in the case of American Campus Communities, its dividend is well-covered with an FFO payout ratio of about 81%, and the company has an excellent track record of giving its shareholders raises. In fact, the company's payout has grown by 55% since 2013, and there's no reason to believe this trend will stop anytime soon.