You work hard for your money. Because of that, it should work hard on your behalf when you invest it, especially if you're seeking some passive income. Ideally, you'd want income streams that steadily grow because that can help you reach your financial goals sooner.
An excellent option for those seeking a rising stream of passive income is EPR Properties (EPR 0.31%). The real estate investment trust (REIT) pays a monthly dividend that it should have no problem growing in the coming years.
An attractive income stream
EPR Properties is a specialty REIT focused on owning experiential real estate. These properties include theaters, eat & play venues, ski resorts, experiential lodging (like waterparks), gaming facilities, and other attractions.
The company currently owns 355 locations triple-net leased (NNN) to more than 200 tenants. That lease structure makes the tenant responsible for insurance, maintenance, and real estate taxes. Because they cover those variable costs, EPR's leases produce very stable cash flow to support its dividend.
The REIT currently makes a $0.25 monthly dividend payment, which works out to $3 per share for the year. That's 10% higher than last year following a dividend increase in February. At the company's recent share price of around $48, EPR offers a 6.8% dividend yield. That's well above the REIT sector's average yield of about 3.4% and the 1.6% yield of the S&P 500 index fund. This payment rate implies that every $1,000 invested in the company will produce $70 of passive income over the next year.
The company can easily support that income stream. EPR Properties expects to generate between $4.39 to $4.55 per share in funds from operations (FFO) this year, implying a dividend payout ratio between 66% and 68%. That's a relatively conservative level for a REIT, enabling EPR to retain some cash to help finance acquisitions.
Meanwhile, the company has a solid investment-grade balance sheet, with lots of liquidity, including $323.8 million in cash and an untapped $1 billion credit facility. That gives it lots of financial flexibility to support the dividend and its expansion.
The room to continue growing
EPR Properties plans to use its financial flexibility to grow its experiential real estate portfolio. The REIT intends to spend between $500 million to $700 million on acquisitions this year. By early May, the company had spent $90.5 million on expanding its portfolio, including buying a fitness and wellness property and an 85% interest in an experiential lodging property.
Last month, it significantly boosted that tally when it agreed to buy the Village Vacances Valcartier resort and hotel in Quebec and the Calypso Waterpark in Ontario for a combined $142 million. Meanwhile, it sees its investment spending ramping up in the second half, driven by its growing pipeline of experiential real estate acquisition opportunities.
Given the timing of these deals, they should help drive growth in FFO per share over the next several quarters. That sets the stage for EPR Properties to give investors another raise next year.
The REIT sees an enormous opportunity to continue acquiring experiential real estate. It estimates that there's a more than $100 billion addressable market for such properties. That's a massive opportunity for a company that currently owns $6.5 billion in real estate. Given its strong financial profile, it has the flexibility to fund attractive opportunities as they arise while paying a growing dividend.
Great income now, even more later
EPR Properties stands out as an excellent option for those seeking passive income. It pays an above-average monthly dividend supported by a strong portfolio and rock-solid financials. Meanwhile, it has an enormous opportunity to expand its portfolio, which should enable it to keep raising the dividend.