One of the best things about owning rental real estate is getting monthly passive income mailed directly to you. Of course, that income quickly needs to be spread around to mortgage payments, reserves, insurance, property taxes, and assorted other expenses. And you have to spend the month wondering what's going to break, which tenants are going to leave, and what's going on with real estate prices. If only there were an easier way to get passive income checks each month.
There is! Realty Income (O -0.96%), EPR Properties (EPR 0.31%), and Gladstone Land (LAND 0.56%) are real estate investment trusts (REITS) all send no-strings-attached, monthly dividends to shareholders. You can choose whether to reinvest the dividend, use it to invest in a different stock, or withdraw the cash for spending. Let's go over the three stocks and their dividend programs.
1. Realty Income
Realty Income is the monthly dividend big dog. It has actually trademarked the phrase "The Monthly Dividend Company," and it qualifies as a Dividend Aristocrat, meaning it has increased its dividend for at least 25 consecutive years.
Realty Income is a net lease REIT, meaning its leases are triple net, requiring the tenant to pay for all insurance, taxes, and maintenance costs. It owns over 11,200 properties and is diversified into grocery stores, convenience stores, restaurants, pharmacies, home-improvement stores, gyms, and even movie theaters.
If you could call any REIT a machine, Realty Income is it. Earnings-per-share has grown in 25 of the last 26 years, and the dividend has too. It has an A3-rated balance sheet and great global prospects for growth. All signs point to it continuing to churn out higher and higher dividends each year.
Speaking of the dividend, the yield is 4%, and draws only 75.6% of the REIT's adjusted funds from operation (AFFO). If you invest $10,000 in Realty Income, you can expect a dividend starting at about $34 per month and for that dividend to increase every quarter, as it has for the past 96.
2. EPR Properties
EPR Properties hasn't had nearly as stable a stock price as Realty Income. It is an entertainment REIT that is mostly invested in movie theaters and other facilities that offer an experience to buyers. Thanks mostly to COVID-19, EPR's stock has fallen about 20% over the past five years. For smart investors, that can be good news.
It means EPR was tested about as harshly as a REIT can be and came through. It did have to suspend the dividend for a while, but the yield is already back up to 6.25%, and that was with a first-quarter payout ratio of 66% -- there is still some room for more dividend growth, even if cash flow doesn't grow much.
The REIT does have a good growth profile, however. In the Q1 earnings release, management spoke about its renewed focus on new investments and said that its "pipeline is ramping up meaningfully."
EPR has a strong dividend with plenty of growth potential. The true question for investors is whether its balance sheet is strong enough. EPR has close to 10 times as much debt as cash on hand. While it is normal for REITs to fund investment with debt because they can't retain earnings, this could present an issue for the company if it has to refinance the debt at a much higher rate in the coming years.
3. Gladstone Land
Gladstone Land is a farmland REIT that owns 113,000 acres across 15 states. The land is leased to farmers, and the REIT focuses on land where healthier foods, such as fruits and vegetables and not grains, are farmed.
On its face, Gladstone isn't as appealing of an investment as the first two REITs. Its dividend yield is just 2.2%, and revenue and cash flow in Q1 2022 were both down from Q1 2021. An investment in Gladstone is an investment in diversification.
Historically, farmland returns aren't correlated to general stock market returns, and farmland REITs like Gladstone benefit from inflation. When inflation really started picking up toward the end of 2021, Gladstone's stock skyrocketed; it was up 80% from November 2021 through April 2022.
The problem is that the stock price is right back to where it was in November last year.
Of course, there's no explaining the market. The business is still doing well, and according to a June report from management, it was benefiting from 11.9% inflation in the types of crops its tenants farm. Even farms in its weakest regional market (drought-ridden California) were recently appraised for 5.4% more than a year ago, and 99.8% of its debt is fixed for the next 5.3 years.
There was no material news that struck down the stock price recently, and that management report was in response to the stock's volatility. If Gladstone can keep building up farmland assets and benefiting from inflation, this could be the best time to buy.