The cost of a state college can be hard enough on a family budget, but my daughter has chosen to go to a school where a four-year degree can cost more than a house. I'm proud that she put in the time and effort to get accepted to an Ivy League school, but I'd be lying if I said I wasn't deeply worried about how my family is going to manage to pay for it.
But I have an ace up my sleeve since I've long invested for income and own a couple of incredibly reliable real estate investment trusts (REITs). Here are my holdings that are going to help me pay for my daughter's college.
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1. Realty Income: The giant with the monthly dividend
I owned VEREIT through its accounting troubles, coming out the other side of it all owning Realty Income (O 0.24%), which completed its acquisition of VEREIT in late 2021. I consider that a huge win, and now that I own this massive net lease REIT, I am collecting its generous monthly dividends. That's cash I can put toward college bills, noting that the school to which my daughter is going offers a generous monthly payment plan (it graciously doesn't charge interest or fees).
There's a lot to like about Realty Income, even if you aren't trying to pay for college. For example, the net lease model requires tenants to pay for most of the operating costs of the properties this REIT owns. Although any single property is risky, given it only has a single tenant, the risk becomes fairly low over the company's more than 11,000-strong portfolio.
The biggest proof of just how reliable Realty Income is comes from its dividend, which has been increased annually for more than 25 consecutive years. It is a Dividend Aristocrat, a rarefied group of companies.
While most of its portfolio falls into the retail sector, it gets about 15% of its rents from industrial properties. That provides a touch of diversification. However, the real attraction here today is the company's massive scale, as it allows the REIT to take on deals that peers couldn't consider. That includes the recent agreement to buy a casino. Despite the $1.7 billion price tag, the property will still make up only around 3.5% of rents.
More big deals like this are likely as Realty Income works to expand into Europe, a region where the net lease market is less developed and multi-asset deals are more likely. With a generous 4.4% dividend yield, I know I have a reliable income backstop to help pay the bills over the next four years.
2. W.P. Carey: Diversified and reliable
I've owned W.P. Carey (WPC -0.85%) for much longer than Realty Income. It is also a net lease REIT, but its highly diversified portfolio separates it from its peers. In fact, it is one of the most diversified REITs an investor can buy. To put some numbers on that, W.P. Carey's rent roll is spread across industrial (27%), warehouse (24%), office (20%), retail (18%), self-storage (5%), and a broad "other" category (the remainder).
On top of that, the REIT generates around 37% of its rents from outside the United States, mostly from Europe. And unlike Realty Income, which is just starting to expand overseas, W.P. Carey has been operating in Europe for over two decades and is well respected there.
The REIT has increased its dividend annually since its 1998 initial public offering (IPO). While that's not as long as Realty Income's streak, it still stands toe to toe on the dividend front in my book. However, where it beats its larger net lease peer is on the yield front, given W.P. Carey's 5.4% dividend yield. For income-focused investors, it could be a better option than Realty Income.
One other fact that makes me confident that I can count on quarterly checks from W.P. Carey is that it sailed through the pandemic. While some REITs were having trouble collecting rent, this landlord never saw its rent collections drop below 96%. Given the geopolitical and economic backdrop today, I'm counting on the benefits of this diversification to keep my coffers full so I can more comfortably handle my daughter's school bills.
Happy, not happy
I'm not so pleased to know that the next four years of my financial life will be about working as hard as I can to pay for my daughter's college education. But I am happy she's going (and to a good school) and that I have portfolio holdings like Realty Income and W.P. Carey that provide reliable dividends to help me pay for it.
However, even if you don't have a kid going to college, these are two dividend-paying stocks that you could happily own in your portfolio, too.
