I'm a big fan of investing in real estate investment trusts (REITs). These entities have historically paid generous dividends while producing returns as good as the broader market with less volatility. Because I like collecting passive income, REITs make up a sizable portion of my portfolio.
Three REITs I've been loading up on are Realty Income (O 2.11%), Medical Properties Trust (MPW +0.27%), and W.P. Carey (WPC 1.05%). Here's why they're becoming bigger pieces of my real estate portfolio.
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Living up to its name
Realty Income has been a standout performer over the years. The retail REIT has paid 622 consecutive monthly dividends throughout its more than 50-year operating history. Since going public in 1994, the REIT has increased its dividend payment 115 times, including for the last 98 consecutive quarters, growing it at a 4.4% annual rate. Truly, this REIT embodies its name.
The REIT should have no problem continuing to grow its dividend in the future. It has a conservative dividend payout ratio of 78.5% of its adjusted funds from operations (AFFO) and one of the highest credit ratings in the REIT sector. That gives it the financial flexibility to continue acquiring income-producing commercial real estate. The company expects to purchase over $5 billion of properties this year. That's a small fraction of the $12 trillion addressable market for global net lease real estate.
With a monthly dividend yielding 4.5% -- well above the REIT sector's 3% average and the S&P 500's 1.5% yield -- it's providing my portfolio with lots more income each time I buy more shares.
NYSE: O
Key Data Points
A healthy passive income producer
Medical Properties Trust has delivered a healthy dose of dividend income to its investors over the years. The hospital-focused healthcare REIT has increased its payout for nine straight years. It has grown at a 3.8% compound annual rate since the end of 2018, significantly outperforming its healthcare REIT peers, which have slashed their dividends by 10% on average during that timeframe.
The company should be able to continue growing its payout in the future. It has a very strong payout ratio in the 80% of AFFO range. Meanwhile, it has a solid balance sheet. These features provide it with ample financial flexibility to fund additional hospital acquisitions.
The company also routinely recycles capital to fund new investments. It can sell single assets at a profit and a portion of a portfolio to a joint venture. These deals free up cash for new investments so that it doesn't have to dilute existing investors by issuing new shares. The company believes it can fund $1 billion to $3 billion of highly accretive deals this year, giving it more capacity to grow its 6.5%-yielding dividend in the future.
NYSE: MPW
Key Data Points
More dividend growth ahead
W.P. Carey also has a long history of growing its dividend. The diversified REIT has given its investors a raise every year since going public in 1998. The payout currently yields an attractive 5.4%.
A big growth driver for W.P. Carey over the years has been acquisitions. The REIT has steadily purchased operationally critical real estate secured by long-term NNN leases, enabling it to steadily grow its rental income streams and dividend.
The company purchased a record $1.73 billion of real estate last year. It sees the potential for buying another $1.5 billion to $2 billion this year. On top of that, it's acquiring a real estate investment fund it manages, adding another $2 billion of real estate assets to its portfolio. These deals should enable W.P. Carey to continue growing its already sizable dividend.
NYSE: WPC
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Loading up on my ability to collect dividend income
I love investing in REITs because they allow me to sit back and collect passive income. Few REITs are better income producers than Realty Income, Medical Properties Trust, and W.P. Carey. They boast of paying high-yielding dividends that have consistently increased over the years. That's why I continue to load up on these REITs to boost my ability to collect passive income in the future.
