Passive income can mean different things to different people, including the folks at the IRS, which has a whole set of rules about income derived from businesses in which you don't materially participate. That includes, for instance, leasing equipment or participating in real estate partnerships in which you have no active management role.
For our purposes here, we'll consider passive income to be that income you get from investing in assets that generate cash flow simply because you put money into them. The stock market is a great place to do just that, and there's no shortage of dividend-paying stocks to choose from.
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Let's look at three promising real estate investment trusts (REITs). REITs hold portfolios of income-producing properties and are required to pay out at least 90% of their taxable income to shareholders. That alone makes them good considerations for income stocks.
According to Nareit, REITs have outpaced inflation in all but two of the past 20 years. According to an article on the trade group's website:
REITs provide natural protection against inflation. Real estate rents and values tend to increase when prices do. This supports REIT dividend growth and provides a reliable stream of income even during inflationary periods.
Below are three to consider, each a prominent player in its specific real estate investing segment.
ARE Dividend data by YCharts.
1. Camden Property Trust
Camden Property Trust (CPT -1.35%) is a Houston-based builder, owner, and manager of 170 apartment communities across the United States, with five more currently under development. With a market cap of about $17.5 billion, the company just joined the S&P 500. It is benefiting from the intense demand for apartments that allowed Camden to raise its rents by about 15% in the past year.
Camden has raised its dividend by more than 25% in the past five years and is currently yielding about 2.27% after declaring a payout of $0.94 per share for the first quarter of this year. The growing demand for housing in the hot markets where Camden operates should keep this performance strong going forward, too.
2. Prologis
Prologis (PLD -2.70%) is the billion-square-foot gorilla among REITs. That's how much warehouse space this San Francisco-based behemoth has in its 4,700 or so buildings around the world, including about 3,300 in the United States alone.
Red-hot demand has allowed Prologis to enjoy record rental growth and soaring revenue, and it has a long record of sharing the wealth. The company has raised its dividend by nearly 80% in the past five years, including a recent increase of about 25%, from $0.63 to $0.79 per share.
Even at that pace, the current yield is only about 1.91%, reflecting the high share price the market has bestowed on this logistics giant, whose market cap of about $122 billion places it among the largest REITs.
3. Alexandria Real Estate Equities
Alexandria Real Estate Equities (ARE -2.18%) has a powerful niche in a growing business. This San Diego-based REIT develops and leases laboratory and high-dollar office space, focusing on collaborative campuses in such high-tech hotspots as Boston, North Carolina's Research Triangle, the San Francisco Bay area, Seattle, suburban Washington, D.C., and its own hometown.
Its tenants include major pharmaceutical and biotech operators, just for starters. Demand for such space has helped Alexandria generate the revenue to raise its dividend for a dozen years in a row, including by about 33% in the past five years. An annualized dividend of $4.60 per share is good for a yield of about 2.32% for this stock, which currently boasts a market cap of about $32 billion.
ARE Total Return Level data by YCharts.
Active streams of passive income now and going forward
As the chart above shows, Camden and Prologis have easily beaten the S&P 500 in total return -- which combines dividends and share price -- for the past five years, while Alexandria has been close, and its yield of about 2.32% is well above the big index's current yield of about 1.37%.
These companies are established operators with long records of performing and even outperforming in competitive markets. Each would make a fine choice to provide reliable income along with nice growth prospects for years to come.
