Real estate is arguably the most durable asset class there is; it's practically a certainty that land will always remain a hot commodity. It's a fantastic hunting ground for great dividend stocks that will put passive income into your pocket just for owning a piece of the company.
Whether owning property directly or selling realty-related products or services, here are three no-brainer winners you can hold in confidence for their proven dividends.
A retailer that offers both growth and income
NYSE: LOW
Key Data Points
Lowe's (LOW 1.37%), the home improvement retailer, is a player in a big business: According to Statista, the home improvement market could grow to $620 billion by 2025. Lowe's does more than $95 billion in annual sales, which leaves plenty of room for growth. The company's revenue has increased by an average of 6.5% annually over the past decade alone.
The stock is a Dividend King, having raised its payout annually for 60 consecutive years, one of the longest streaks by a public company. You can see why below: Free cash flow, the cash profit of a business, has steadily grown larger over the years. When you wash away all of the fancy terms and jargon, that's all dividend growth is -- making more cash profits over time, then sharing them with investors. Lowe's pays a dividend yield of 1.6%.
LOW free cash flow. Data by YCharts.
But it's management's conservative approach that gives investors peace of mind. The dividend payout ratio is just 29%, which means it's a small burden for the company. Even if a recession came, Lowe's would have to see its business completely collapse and cash profits go to almost zero for it to not afford its dividend payments. I don't think that's very likely, so income investors can count on this blue chip retailer.
Get paid monthly with this REIT
NYSE: O
Key Data Points
Not many companies pay their investors monthly, but Realty Income (O +0.71%) has made its monthly payout part of its identity -- it calls itself the Monthly Dividend Company. Realty Income, a real estate investment trust (REIT), acquires and rents properties; it must pay at least 90% of its taxable income to investors as dividends.
Realty Income specializes in single-tenant properties, renting to companies in the retail sector, like pharmacies, convenience stores, grocery stores, and more. It's a net-lease REIT, which means that the tenant is responsible for expenses like taxes, maintenance, and insurance, giving Realty Income a much more predictable income stream.
O funds from operations (TTM). Data by YCharts. TTM = trailing 12 months.
REITs pay dividends by design, so the payout ratio will be slightly higher than most other types of dividend stocks. The company's payout ratio is 76% of cash flow, which is very affordable given how stable its cash profits (called funds from operations) have been. The company is a Dividend Aristocrat, with 29 consecutive annual payout increases and counting. Investors can enjoy monthly payments giving them a 4% yield for the year.
The REIT with the longest active dividend growth streak
NYSE: FRT
Key Data Points
One could argue that the safest dividend is a growing one; by that logic, Federal Realty Investment Trust (FRT 0.23%) should sit at the top of your list. The company proclaims that its 55 years of dividend growth are the longest of any REIT. The secret? You can see below how cash profits have steadily grown over time. It's a solid income stock that pays a 3.9% dividend yield.
FRT dividend. Data by YCharts.
Federal Realty doesn't have thousands of properties; it currently manages just 105. But instead of single-tenant buildings, the company specializes in open-air shopping centers and other mixed-use facilities. It targets the suburbs outside major metropolitan markets like New York, Boston, Silicon Valley, and others. The average household income in Federal Realty's markets is $151,000.
Management believes that these higher-income demographics are more resilient, and the 55 years of dividend growth speak loudly to that philosophy. The company has $1.2 billion in cash and undrawn credit, enough to replace more than a year of revenue. It's hard to imagine this dividend going anywhere soon.
