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3 Income REITs to Buy in January

By Matthew DiLallo – Jan 5, 2022 at 10:43AM

Key Points

  • Retail REIT Agree Realty pays a 3.8%-yielding monthly dividend.
  • Office REIT SL Green Realty pays a 5.1%-yielding monthly dividend.
  • Diversified REIT W.P. Carey pays a quarterly dividend yielding 5.1%.

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These real estate investment trusts are great options for those seeking to generate passive income.

Real estate investment trusts (REITs) are a great way to collect passive income. The average REIT currently offers a dividend yield of around 3%, double that of the average stock in the S&P 500.

Three REITs that stand out as great options for those who want to start generating passive income in 2022 are Agree Realty (ADC -0.27%)SL Green (SLG 0.58%), and W.P. Carey (WPC 0.24%). All three offer sustainable income streams and high dividend yields that should continue rising in 2022. 

A person putting another coin on a growing stack.

Image source: Getty Images.

1. Agree Realty: Focused on low-risk retail properties

Agree Realty is a retail REIT focused on owning freestanding properties triple net leased to high-quality tenants. The company primarily focuses on investment-grade retailers resistant to disruption from e-commerce and recessions, like grocery, home improvement, and convenience stores. Meanwhile, its focus on triple net leases makes tenants responsible for building maintenance, real estate taxes, and building insurance. That provides Agree Realty with steady rental income.

That focus on durability has paid big dividends. Agree Realty has grown its payout, which currently yields 3.8%, at a 5% annual rate over the last decade, including 7.7% over the past year. Agree Realty further supports its dividend, which it pays monthly, with a fortress balance sheet. It has investment-grade credit, limited debt maturities in the coming years, and a conservative dividend payout ratio

Agree Realty's strong financial profile gives it the flexibility to continue expanding its portfolio. The REIT was on track to acquire up to $1.4 billion of additional real estate in 2021. Those deals had helped support a 10% year-over-year increase in its adjusted funds from operations (AFFO) per share through the third quarter.

With ample financial flexibility, Agree Realty should be able to continue acquiring cash-flowing real estate in 2022 and beyond. That positions the REIT to keep growing its attractive income stream.

2. SL Green: Standing tall amid the pandemic

SL Green is Manhattan's largest office landlord. The REIT focuses on owning top-tier properties in desirable locations leased to high-quality tenants. 

While the pandemic has had an outsized impact on the office sector, SL Green has weathered the storm quite well. Even though working from home has been a major trend, there has been a move toward quality in the office sector. Tenants have leased space in buildings offering the best amenities, air filtration, and location to entice their workers back to the office. That has benefited SL Green, given its focus on owning top-tier office properties in the Big Apple.

Because of that and its strong financial profile, SL Green has continued growing its dividend during the pandemic. It recently increased its payout by another 2.5%, marking its 11th consecutive year of growth. That pushed the office REIT's yield up to 5.1%. Combine that with the fact SL Green pays a monthly dividend, and it's an excellent option for income-seeking investors.  

3. W.P. Carey: Remarkable income consistency

W.P. Carey has been an excellent income REIT over the years. The company has grown its dividend, which currently yields 5.1%, every year since its initial public offering in 1998.

One factor driving the durability of its income stream is its diversified approach. The company gets 25% of its annual base rent from industrial real estate, 24% from warehouses, 21% from offices, 17% from retail properties, 5% from self-storage facilities, and 8% from other property types. It focuses on owning mission-critical properties that it triple net leases to high-quality tenants. That strategy provides W.P. Carey with very stable rental income.

W.P. Carey also has a high-quality financial profile, including an investment-grade-rated balance sheet and reasonable dividend payout ratio. That gives it the financial flexibility to continue expanding its portfolio. The diversified REIT was on track to acquire up to $2 billion of properties in 2021. Meanwhile, it has ample financial flexibility to continue growing its portfolio in 2022 and beyond. 

Excellent REITs for generating passive income

Agree Realty, SL Green Realty, and W.P. Carey offer everything income-focused investors could want in a REIT. They generate stable rental income, supporting above-average dividends. On top of that, they have strong financial profiles, which supports their ability to expand their portfolios and steadily increase their dividends. That makes this trio stand out as excellent income REITs to buy this January.

Matthew DiLallo owns SL Green Realty 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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