Owning real estate is one of the most tried-and-true methods of building wealth over time. But assembling and managing a portfolio of rental properties isn't affordable or practical for most people.
Real estate investment trusts (REITs) solve that problem; these are companies that rent out properties and distribute the majority of taxable income to shareholders as dividends.
Building a diversified portfolio of various REITs can give you the financial benefits of being a real estate tycoon without the headaches. Here are five great names to consider buying and holding for the next 10 years.
1. A retail REIT that pays monthly
Realty Income (O 0.55%) owns and rents out single-tenant retail properties. The company is a net lease REIT, which means that the tenant is responsible for paying for the property's insurance, taxes, and upkeep. Not only is Realty Income a Dividend Aristocrat with 28 consecutive years of payout increases, but it also pays investors monthly, something it owns proudly, calling itself the Monthly Dividend Company.
Realty Income FFO per share (TTM). Data by YCharts. TTM = trailing 12 months.
Investors get a robust 4.2% dividend yield at the current share price, and you can see in the chart above how Realty's cash profits, called funds from operations (FFO) per share, easily cover the dividend with a payout ratio of 86%. The stock has crushed the S&P 500 in total returns since going public in 1994, and the company's financials remain solid today.
2. Dialing up dividends
American Tower (AMT 0.58%) is a REIT that owns the land and structures of cell towers that telecoms and other communications companies use. The company transitioned to a REIT structure in 2012 and has been paying and raising its dividend for 12 years. It yields just 2.2%, but the payout has risen by an average of 17% annually over the past three years.
AMT FFO per share (TTM). Data by YCharts.
You can see above how smooth American Tower's growth has been, and it's arguably the most dependable REIT you'll find. Its customers need cell towers for their businesses to function, so the company almost always gets its rent money. The dividend adds up to an annual sum of $5.72, so the roughly 50% payout ratio gives the company plenty of breathing room.
3. Paging the dividend-yield doctor
Universal Health Realty Income Trust (UHT 0.15%) is a REIT in the healthcare sector that owns facilities like medical office buildings, acute-care hospitals, rehab centers, and child care facilities. The company pays a fat dividend that yields 5.4% but doesn't grow very much; its average annual increase is less than 2%.
UHT FFO per share (TTM). Data by YCharts.
There are also odd relationships within the company; Universal Health Services manages Universal Realty Health externally but is also its largest tenant. The company's 2022 first-quarter FFO was $0.90 per share, and it just raised its quarterly dividend to $0.71, for a payout ratio of 79%. The company might require closer watching, but the affordable payout ratio and long track record of 37 increases should give investors some comfort.
4. File away this REIT
Iron Mountain (IRM 1.00%) owns and operates information storage centers. The company's legacy business of storing and managing paper records goes back to the 1950s, and management is investing in a steady transition to data centers to modernize the business. The dividend offers a high 5.3% yield, but management hasn't increased it since the pandemic began.
IRM FFO per share (TTM). Data by YCharts.
Don't assume that Iron Mountain is in trouble; the company's 2022 first-quarter revenue set a company record, and the dividend payout ratio is just 54%. In the long term, investors will want to follow the company's transition to the data-centers business, but they can enjoy that juicy yield in the meantime.
5. Some diversification for good measure
W.P. Carey (WPC 0.02%) is one of the few REITs that take a more diversified approach. The company focuses on single-tenant occupants, and it owns office buildings, retail locations, warehouses, and more. The yield is 5%, and investors have gotten an annual bump for the past 25 years and running.
WPC FFO per share (TTM). Data by YCharts.
W.P. Carey is one of the larger REITs, with an enterprise value of roughly $22 billion and more than 1,300 properties across the U.S. and Europe. The dividend payout ratio is very manageable at 72%. A total of 99% of its tenants have contractual rent escalators, and more than half are linked to inflation rates, making the stock one that should fare well in this high-inflation environment.
