While all real estate investment trusts (REITs) must pay a dividend to maintain their tax-advantaged status, not all of them can sustain their payouts when times get tough. Issues ranging from declining rental income streams, high dividend payout ratios, and overleveraged balance sheets can cause a REIT to reduce its dividend.

However, some REITs are in such strong positions that they should have no trouble sustaining their dividend even during the deepest industry downturn. Three of the safest dividends in the REIT sector are those paid by Camden Property Trust (CPT 0.10%)Prologis (PLD -0.17%), and Realty Income (O 0.23%).

Stacks of coins next to small houses.

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Leading the pack in dividend security

Camden Property Trust is a residential REIT focused on owning apartment communities in fast-growing cities, predominantly in the Sun Belt region. Apartments tend to be durable investments, with demand and rental rates typically holding up relatively well during a recession while bouncing back fairly quickly in the eventual recovery. That was certainly the case in recent years. While the recession caused by the initial shock of the pandemic impacted apartment demand, it has snapped back big-time as those fears faded, especially in the Sun Belt region.  

Camden Property Trust compliments its relatively steady rental income with a top-notch financial profile. It's one of only a handful of REITs with A-rated credit. Meanwhile, it has a conservative dividend payout ratio of less than 60% of its 2022 funds from operations (FFO) estimate. Those features put its 2.6%-yielding dividend on one of the firmest foundations in the REIT sector. 

Meanwhile, that low dividend payout ratio enables Camden Property to retain a lot of cash to invest in expanding its portfolio. The REIT has several development projects underway that should help grow its rental income streams in the future. That rising cash flow will put the REIT's dividend on an even more sustainable foundation.

Multiple factors reinforce this dividend's safety

Leading industrial REIT Prologis has one of the best financial profiles in its peer group. Like Camden, it's one of the only a handful of REITs with A-rated credit. Meanwhile, it's on track to pay out slightly more than 60% of its FFO this year to cover its 2.5%-yielding dividend. 

That strong financial profile gives the REIT plenty of flexibility to continue expanding its operations. Prologis plans to invest billions of dollars in building additional logistics properties this year. Meanwhile, it offered to buy its next biggest rival, Duke Realty, in a $24 billion deal.

Prologis is investing so heavily to expand its portfolio because demand for warehouse space is red hot these days. That's pushing vacancy rates to record lows, driving up rental rates. 

Speaking of rents, because of the long-term nature of Prologis' rental contracts, it's not capturing the full market rates at most of its properties. Overall, its average rental rate is 47% below current market rates. That implies a $1.6 billion upside opportunity for its net operating income, 45% higher than the current level. Add that embedded income opportunity to its strong financial profile, and Prologis dividend is on an incredibly strong foundation.

A dividend built for durability

Realty Income takes pride in providing its investors with dependable dividend income. The REIT takes several steps to ensure it can continue paying its dividend in all market conditions.

First, Realty Income focuses on owning operationally critical free-standing properties triple net leased (NNN) to high-quality tenants in industries resilient to disruption from e-commerce and economic downturns. NNN leases make the tenant responsible for maintenance, building insurance, and property taxes, insulating Realty Income from inflating costs and enabling it to generate steady rental income. Meanwhile, it owns a diversified portfolio of properties like convenience, grocery, drug, dollar, and home improvement stores, warehouses, manufacturing facilities, and casinos.

It compliments that durable real estate portfolio with a top-notch financial profile. Realty Income also has A-rated credit and a reasonable dividend payout ratio of about 75% of its adjusted FFO. Those features give it plenty of cushion to maintain its dividend during tough times. They also allow it to keep expanding its portfolio by acquiring additional cash-flowing commercial real estate.

These factors have enabled Realty Income to increase its 4.4%-yielding dividend 115 times since it came public, including in each of the past 98 quarters. That more than 25 years of steady dividend growth makes Realty Income one of only a few REITs qualifying as a Dividend Aristocrat

As close to guaranteed income as you'll find in the REIT sector

Camden Property, Prologis, and Realty Income have some of the safest dividends in the REIT industry. All three companies have top-tier financial profiles, enabling them to sustain their dividends even during tough times. They're great options for investors seeking rock-solid passive income streams.