Passive income is what you'll want if you're shifting into retirement before you're ready to collect Social Security checks. Basically, by collecting dividends, you'll be living off of your nest egg instead of spending it down.
The problem today is that the S&P 500 Index's yield is approximately a tiny 1.4%. You can do much better than that with these two real estate investment trusts (REITs), both of which provide necessities that people use every single day.
A trip to the local store
Brixmor's (BRX 0.78%) dividend yield is a generous 4.8%. The REIT owns a collection of 380 strip malls. These aren't exciting properties, but they're the types of vital retail assets that people visit on a regular basis, with 70% counting grocery stores as an anchor tenant. Around such retailers, which are a consistent traffic generator, are smaller retailers, like nail salons and restaurants. These properties are vital cogs in the areas where they operate.
What's most notable about Brixmor, however, is that it's been working on two fronts when it comes to growth. Externally, it's been buying select properties that it believes offer long-term value. Internally, it's been creating value by redeveloping its properties to add more space, bringing in better tenants, or simply sprucing up a location so it looks more appealing. This is no small effort, and roughly a third of the portfolio has been upgraded or is in the process of redevelopment right now.
Currently, the REIT has around $400 million in projects in the works and another $1 billion on the drawing board. When it buys a new property, meanwhile, it generally looks to make sure that there's an opportunity for redevelopment, which expands its pipeline of internal-growth opportunities.
That's vital because these investments allow the REIT to increase the rent it generates from an asset over time via rental increases and higher occupancy rates. If you're looking to generate income, knowing that Brixmor has a solid pipeline of value-enhancing projects should be very comforting.
Even more basic
AvalonBay's (AVB 0.07%) focus is even more simplistic, since the REIT owns rental apartments and everyone needs shelter. Its yield is currently around 3.3%, over 2 percentage points higher than what's on offer from the S&P 500.
AvalonBay owns nearly 300 apartment buildings, with a focus on assets in or near large metropolitan areas. During the early days of the coronavirus pandemic, investors were worried that this would be a problem. To some degree it was, as occupancy rates slipped and rental rates had to be lowered. But there's been a strong and rapid rebound, again proving AvalonBay's long-term approach.
The key here, however, is that while AvalonBay only owns apartments, it takes a very active approach with its properties. That means it sells assets that are either older or fully valued, buys properties that are new and in attractive areas (assuming they cost less than building new), and builds from the ground up in regions with strong labor markets and high barriers to entry. Which tactic is most favored generally depends on the market environment, but management is always looking to keep growing no matter what is going on. Right now the REIT has a $4 billion development pipeline, with a focus on building up its exposure to hot markets like Denver, Texas, and southeast Florida.
Essentially, it's using its historical core markets to reach into up-and-coming regions of the country. That, in turn, should lead to slow and steady growth to support the dividend over time. This is exactly the type of thing you'll want to see if you're trying to create a solid passive income stream.
What people need
The backstory for Brixmor and AvalonBay is that they both provide necessities of life. That, in turn, should support their long-term ability to pay you well via dividends.
There are other investments out there with higher yields, of course, but you'll want to make sure you have strong cornerstones for your portfolio, too, and that's exactly what these two REITs, with built-in growth opportunities, can offer. Take a look, and you'll likely find one or both appealing enough to add to your dividend-producing holdings.