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3 Under-the-Radar Passive Income Stocks

By Matthew DiLallo - Jun 27, 2021 at 6:16AM

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These underfollowed companies offer steady income streams.

Dividend stocks can be a great way to generate some passive income. There are many to choose from, including companies on the well-known Dividend Aristocrat list.

There are also a few unsung dividend heroes that fly under the radar of most investors. Three lesser-known dividend stocks that income investors won't want to miss are Medical Properties Trust (MPW 0.62%)Xcel Energy (XEL -0.67%), and W.P. Carey (WPC -0.59%). Each company offers an attractive dividend yield and steady growth, making them excellent passive income stocks.

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A healthy income stream

Medical Properties Trust is a niche player in the real estate investment trust (REIT) industry. It concentrates on owning hospital properties that it leases back to healthcare companies. That arrangement enables Medical Properties Trust to generate steady rental income to support its 5.5%-yielding dividend.

The REIT has increased that payout in each of the last eight years, growing it at an average annual rate of about 5%. Driving Medical Properties' steady growth has been its ability to expand its portfolio by purchasing additional hospital properties. The REIT made $3.6 billion of new investments last year, which helped grow its cash flow per share by 21%. Meanwhile, it has already signed deals to invest another $3.4 billion this year. Those acquisitions will drive additional cash flow growth, enabling Medical Properties to continue increasing its dividend. 

A high-powered dividend growth plan

Xcel Energy is a sleepy utility holding company that operates across eight midwestern states. While it doesn't have the name recognition of some other utilities, it has a solid dividend track record. Xcel currently yields about 2.8% -- double the average stock's yield in the S&P 500 -- and has increased its payout each year since the early 2000s. 

The company believes its best dividend growth days lie ahead. It's currently pouring billions of dollars into expanding its operations, including building new electricity transmission lines and renewable energy projects. Xcel estimates that these investments will grow its earnings per share at a 5% to 7% annual rate over the next several years, supporting a similar dividend growth rate. That makes the utility a low-risk way to generate a passive income stream powered by the energy transition to cleaner fuel sources.

Passive income from real estate

W.P. Carey is a REIT that owns a diversified portfolio of commercial real estate, including offices, warehouses, retail locations, industrial buildings, self-storage facilities, and other properties. It leases these properties to tenants under triple-net terms, making them responsible for insurance, taxes, and maintenance. W.P. Carey thereby generates stable cash flow that it uses to pay its 5.4%-yielding dividend.

The real estate company has increased that payout every year since its IPO in 1998. Driving W.P. Carey's consistent growth has been a combination of rental increases on existing properties and a steady diet of acquisitions. Last year, the company made $826 million of investments, helping support another dividend increase amid a turbulent year for REITs. Meanwhile, it expects to complete $1.25 billion to $1.75 billion of new investments this year, giving it more fuel to keep increasing its attractive payout. 

Excellent stocks for generating passive income

Medical Properties, Xcel Energy, and W.P. Carey are far from household names. Because most investors haven't heard of these companies, they are missing out on their attractive dividends. With above-average yields and a long streak of consistent increases showing no signs of ending, they are great stocks for investors seeking ways to generate some passive income.

Matthew DiLallo owns shares of Medical Properties Trust and W. P. Carey. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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Stocks Mentioned

Xcel Energy Inc. Stock Quote
Xcel Energy Inc.
XEL
$74.61 (-0.67%) $0.50
W. P. Carey Inc. Stock Quote
W. P. Carey Inc.
WPC
$86.55 (-0.59%) $0.51
Medical Properties Trust, Inc. Stock Quote
Medical Properties Trust, Inc.
MPW
$16.32 (0.62%) $0.10

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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