Dividend stocks are a great way to pad your wallet with cash flow that can help offset the effects of inflation while also providing the opportunity for capital appreciation in the form of a rising share price.
Of course, you need to pick stocks that have the experience and business models to reliably generate the cash they need to fund that flow of passive income. Real estate investment trusts (REITs) are a good sector to turn to in that regard, with their obligation to return at least 90% of their taxable income to shareholders.
Not all REITs are created equal, of course, so I want to share here some information on two I own and why. They are Agree Realty (ADC 0.25%) and Medical Properties Trust (MPW 1.65%)
ADC Funds from Operations (TTM) data by YCharts
The chart above shows how each of these companies has sharply grown funds from operations (FFO) over the past five years. FFO is a measurement of the cash flow a REIT generates, a key metric for evaluating a REIT since that's the cash used to pay dividends.
The chart also shows that these two REITs have been rewarded with enough share price growth to provide total returns exceeding that of the Vanguard Real Estate ETF, a good proxy for REIT investors.
Here's more on why each of these REITs would make a fine buy this July.
Agree Realty
Agree Realty is a retail REIT on a roll. While some REITs have gone along with the rest of the stock market on the ride down, Agree shares are up about 3% year to date. That's how much confidence there is in this proprietor of properties dominated by major retailers.
This suburban Detroit company also is growing fast. Agree ended 2021 with 1,129 properties and about 22.7 million square feet of leasable space. Now it has more than 1,500 properties, with a presence in 47 states and a growing business not only in triple-net leases of buildings it directly owns, but in ground leases, in which the company leases the land alone to builders and tenants.
Those leases tend to be even longer than building leases, and in both cases, Agree enjoys reliable, growing revenue that should help build on a record of 12.5% compound annual average total return since it went public in 1994.
Oh, and that dividend? Agree is currently yielding about 3.8% after raising its dividend four times since the beginning of 2001, when the company went from paying its dividend quarterly to monthly.
Medical Properties Trust
Medical Properties Trust is one of the world's largest hospital owners, with 440 facilities and about 46,000 beds in 10 countries on four continents.
The Birmingham, Alabama-based healthcare REIT has 53 tenant and capital lender relationships with operators on a net-leased basis, with about half of its portfolio in general acute-care hospitals and the rest spread across behavioral health, long-term acute care, and freestanding urgent care centers.
MPT's operators are a diverse group, with its largest property accounting for less than 3% of its portfolio, and the average weighted lease and loan maturities of nearly 18 years. Along with growing FFO, the company has grown its dividend for nine straight years and is currently yielding a very nice 7.4% or so with a very sustainable payout ratio of only about 70%.
This is a seasoned operation with a long record of outperformance, including outpacing the S&P 500 in total return since MPT went public in 2005. But, MPT stock is also badly beaten down, off more than 30% so far this year. This seems like a good time to buy.
A good time to buy both these income stocks
To me, MPT is an obvious buying opportunity, given the presence it has in the market it's in and its long record of shareholder payouts and other positive growth metrics. Agree also remains a buy to me, even though its stock price has held up nicely. A growing portfolio of properties dominated by investment-grade tenants who pay the rent should just keep on producing handsome returns for years to come for this REIT.
