Commercial real estate is a proven wealth creator. While once only available to wealthy investors, that changed in 1960 when Congress created real estate investment trusts (REITs). Now anyone can benefit from owning income-producing real estate.
I've seen the value of owning REITs firsthand. Three REITs that have made me a lot of money are Medical Properties Trust (MPW -1.51%), SL Green Realty (SLG -0.48%), and W.P. Carey (WPC 0.27%). A big contributor has been their big-time dividends.
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A healthy dose of dividend income
Healthcare REIT Medical Properties Trust currently clocks in at a 5.8% dividend yield. That's well above the S&P 500's 1.3% dividend yield and the roughly 3% average in the REIT sector.
Thanks to that lucrative dividend, the hospital owner has made me a lot of money over the years. While shares of the REIT are only up about 60% since I first started buying them in 2007, my total return on that initial purchase is over 365%, or 11.2% annualized. That's comfortably ahead of the S&P 500's roughly 300% total return (10% annualized) during that time frame. Meanwhile, I'm up even more on subsequent purchases made during market sell-offs.
Medical Properties Trust has steadily grown its dividend over the years. The REIT has increased it for nine straight years, growing it at a 3.8% compound annual rate since the end of 2018. The primary driver has been its ability to continue expanding its hospital portfolio by acquiring additional properties. With billions of dollars in hospital real estate around the world, the REIT should be able to continue growing its lucrative dividend in the coming years.
Skyscraping returns
SL Green is a more recent entry to my portfolio. I bought the office REIT toward the end of 2020 on the belief that the New York City office market (where it's the largest office landlord) would eventually recover from the pandemic. While that market hasn't bounced back as quickly as I'd hoped due to the ongoing pandemic, SL Green's stock has rebounded sharply on signs that it is recovering.
Overall, shares have risen by about 25% since my first purchase. Add in its 4.6%-yielding dividend, and my total return is above 35%, more than double the S&P 500's total return during that time frame.
I believe SL Green will make me even more money in the coming years. Its stock price remains about 17% below its pre-pandemic level even though property values, rental rates, and occupancy levels have held up well in New York City, and leasing volumes are starting to bounce back. Meanwhile, the company has a long history of increasing its high-yield dividend, delivering its 11th consecutive annual raise last year.
A steady wealth creator
Diversified REIT W.P. Carey has been a solid wealth creator for me over the years. While shares have only risen 35% since I first bought them in late 2016, the total return is over 80% after adding the 5.3%-yielding dividend. Even though that's a bit below the S&P 500's roughly 100% total return during that time frame, it's hard to complain about a 12.1% total annualized return from a low volatility income-producing REIT.
One factor driving W.P. Carey's attractive total returns has been its ability to steadily raise its dividend over the years. The REIT has increased its payout each year since its initial public offering in 1998, driven primarily by acquisitions. The company acquired a record $1.72 billion of properties last year and anticipated making $1.5 billion to $2 billion in investments this year.
On top of that, it's merging with an investment fund it currently manages in a $2.7 billion deal. These new additions should enable this REIT to continue growing its dividend, creating more wealth for investors like me.
These REITs should continue making their investors lots of money
REITs are more than income-producing vehicles. Well-managed REITs can consistently grow their cash flow and dividends, which can combine to produce excellent total returns. Given their history of creating wealth for investors, Medical Properties Trust, SL Green Realty, and W.P. Carey still look like great options for investors who want to generate passive income while also earning attractive returns.
