Want $1,000 in Annual Dividend Income? Invest in These Stocks

Investing in dividend-paying companies can be a great way to generate passive income. Historically, some of the best dividend stocks have been real estate investment trusts (REITs). They typically offer above-average dividend yields, with their payouts steadily growing over time.

The sector's higher yields allow investors to generate more dividend income with a lower up-front investment. For example, $20,000 invested across four high-quality, high-yielding REITs -- W.P. Carey (WPC -0.38%), EPR Properties (EPR -2.04%), Realty Income (O -0.22%), and Medical Properties Trust (MPW 3.99%) -- can deliver more than $1,000 of annual income.

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Real estate-backed income streams

REITs are one of the easiest ways of generating truly passive income. These professionally managed entities typically own income-generating commercial buildings secured by leases with high-quality tenants. REITs must distribute at least 90% of their net income to investors via dividends to maintain their tax-advantaged status. Because of that, the average REIT offers a dividend yield of around 3% these days, more than double that of the typical stock in the S&P 500.

This particular quartet provides an even more attractive income stream, with dividend yields between 4.5% and 6.5%. Their higher yields mean that a $20,000 investment spread evenly across these four REITs would generate more than $1,100 in annual dividend income, as seen in the chart.

Data source: Google Finance and author's calculations.

Each REIT brings something unique to the table, making it a good fit for a diversified real estate portfolio.  

Income-generating machines

W.P. Carey is a diversified REIT that focuses on owning operationally critical real estate. It owns more than 1,300 properties across the warehouse, industrial, office, retail, and self-storage sectors net leased to high-quality tenants. That lease structure makes the tenant responsible for maintenance, building insurance, and real estate taxes, enabling W.P. Carey to generate very stable rental income.

The company complements its portfolio with a high-quality financial profile. It has an investment-grade balance sheet and a reasonable dividend payout ratio. That gives it the financial flexibility to continue expanding its portfolio to grow its dividend. W.P. Carey has increased its payout every year since its initial public offering in 1998.

Meanwhile, EPR Properties is a specialty REIT focused on experiential real estate like movie theaters and attractions net leased to tenants that operate these experiences. While it faced some pandemic-related headwinds, the REIT has come out the other side even stronger.

It has an investment-grade credit rating and a reasonable dividend payout ratio of 75% of its funds from operations. The REIT also has a cash-rich balance sheet. Because of that, the company plans to return to growth mode this year after pausing most acquisitions during the early stages of the pandemic. It expects to invest between $500 million to $700 million acquiring additional experiential real estate, which would put its big-time dividend -- which it pays monthly -- on an even firmer foundation. Those deals could enable it to keep increasing its dividend. It recently boosted the payout by 15% after reinstating it last year. 

Realty Income also pays a monthly dividend. The retail REIT has one of the best dividend track records in the REIT sector. It has increased its payout in each of the last 97 straight quarters.

This REIT has ample room to continue growing its payout. Realty Income has a top-notch balance sheet and a conservative dividend payout ratio. That gives it the financial flexibility to continue acquiring high-quality retail properties that are net leased to durable tenants resistant to the headwinds from e-commerce and recessions.

Finally, Medical Properties Trust is a healthcare REIT focused on hospitals net leased to healthcare systems. These properties have demonstrated their importance to society during the pandemic.

The company has a solid financial profile, giving it the flexibility to continue expanding its portfolio. Last year, it made $3.9 billion of new investments, which helped grow its funds from operations at a double-digit-per-share rate. That growth enabled Medical Properties Trust to increase its dividend for the ninth straight year. With plenty of owner-operated hospitals out there, the REIT has lots of growth still ahead.

The lazy landlord portfolio

W.P. Carey, EPR Properties, Realty Income, and Medical Properties all generate stable rental income backed by high-quality real estate net leased to quality tenants. They also boast strong financial profiles. That puts their big-time dividends on solid ground and gives them the flexibility to continue expanding. These features make them excellent investments for those who want to collect at least $1,000 in truly passive income each year.