During your working years, the focus is on building a nest egg. When you hit retirement, however, you need to live off of those savings. Dividends can make that easier to achieve.
These three real estate investment trusts (REITs) have proven they have what it takes to keep paying investors through thick and thin, which could set you up for a lifetime of robust, growing passive income.
1. W.P. Carey: Diversification to the extreme
You know that diversification is good for your portfolio, but it's also good for a REIT. One of the best examples of this is W.P. Carey (WPC 0.02%), which is among the most diversified landlords you can own. Its portfolio spans the industrial (25%), warehouse (24%), office (21%), retail (17%), and self-storage (5%) sectors, with a fairly large "other" grouping rounding out the mix.
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It also offers geographic diversification, with roughly 37% of its rents coming from outside the U.S., mostly from Europe. W.P. Carey uses the net lease approach, which means that its tenants are responsible for most of the operating costs of the more than 1,250 properties it owns.
But diversification alone isn't the reason to buy W.P. Carey. It has also increased its dividend every year since its 1998 initial public offering (IPO), putting it on the verge of becoming a Dividend Aristocrat -- those companies in the Standard & Poor's 500 Index that have raised their payouts for at least 25 years straight.
What's really fascinating about W.P. Carey, however, is how well it puts its diversification to work for investors. For example, it has avoided U.S. retail assets in favor of European retail, because it believes the U.S. has too many stores. And early in the pandemic, it announced plans to buy industrial and warehouse assets. It saw an opportunity to invest in an increasingly important property type while companies were trying to bolster their liquidity in the face of the health scare.
Basically, W.P. Carey is both diversified and opportunistic, a combination that has allowed it to reward investors with regular dividend increases through good and bad markets. Its current yield is a generous 5.6% or so.
2. Universal Health Realty Income Trust: Slow and boring
The next name up is Universal Health Realty Income Trust (UHT 0.15%), which has a 36-year streak of annual dividend increases. This REIT, however, needs some explanation.
For starters, as its name implies, it owns healthcare assets, which is attractive given the size of the aging baby boomer generation. And its 5% dividend yield is also pretty enticing, and now is more than twice what it was at the start of the pandemic. These are good things from a big-picture perspective, but there are some offsets that have to be understood.
For example, the dividend yield has risen dramatically because of some company-specific issues. Notably, its largest tenant is doing a property swap with it. That's important because its largest tenant also acts as its external manager. There are potential conflicts of interest here, but the dividend streak suggests that investors have made out OK just the same.
If you can get past the external manager issue, the next big one is that dividend growth has been very slow over time, averaging less than 2% a year for the past decade, especially when compared with its peers, as shown in the chart. In other words, the yield is the main attraction. But if what you want is to sit back and collect a check, Universal Health Realty Trust is worth a deep dive, noting that bond interest payments don't grow at all over time.
UHT Dividend Yield data by YCharts
3. VICI Properties: Worth a bet
The last name on the list, VICI Properties (VICI 0.54%), is at the other end of the spectrum dividend streak-wise, with just three years of annual hikes under its belt. Don't get too hung up on that, however -- it's a fairly young REIT that only arrived in the market in late 2017 via a spinoff from a casino operator.
What's interesting here is the yield, which is a generous 5%. And notably, despite owning properties in the highly cyclical casino industry, VICI managed to support its dividend right through the coronavirus pandemic. If the dividend can survive that, it'll likely survive the next economic downturn too.
VICI actually used the pandemic uncertainty that's still lingering to expand its portfolio, recently agreeing to buy one of its peers. Following that deal's consummation, VICI will own 43 properties across 15 states. It will have relationships with some of the biggest names in the casino business, with a fairly balanced mix of regional casinos (55% of rents) and Las Vegas locations (45%). Moreover, its average lease length will be a huge 43.5 years, with regular rent increases built in across its portfolio.
In summary: While Universal Health Realty Trust will benefit from baby boomers needing medical care, VICI will benefit from the demographic's desire for entertainment.
Generous, reliable dividends
If you are looking to set up a healthy stream of income in retirement, W.P. Carey, Universal Health Realty Trust, and VICI are all worth a closer look today. However, don't pass them by if you are still building a nest egg -- you can let this trio dividend reinvest until you are ready to start collecting the cash they throw off. Either way, if history is any guide, investors will win.
