Real estate investing is one way anyone can start making passive income. You don't need a lot of money to begin investing in income-producing real estate: Congress made it accessible to everyone by creating real estate investment trusts (REITs) in 1960.
Four top REITs for those seeking to collect passive income are EPR Properties (EPR 1.20%), STORE Capital (STOR +0.00%), Medical Properties Trust (MPW 0.10%), and W.P. Carey (WPC +1.21%). All four REITs offer dividend yields well above the S&P 500 index and the REIT sector average. With these stocks, you can turn $1,000 of idle cash into an income stream.
NYSE: EPR
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A big-time dividend with room to grow
EPR Properties currently offers a 7.8% dividend yield. That's significantly above the 1.6% dividend yield on an S&P 500 index fund and the 3.7% average across the REIT sector. With EPR Properties, you could turn $1,000 of idle cash into $78 of annual passive income. For comparison, that same $1,000 would generate $16 of passive income in an S&P 500 index fund and about $37 if invested in the average REIT.
EPR Properties focuses on owning experiential real estate (movie theaters, eat-and-play properties, and other attractions) leased to the operators. These leases produce steady rental income to support the dividend. This year the REIT expects to generate enough cash to cover its payout with about $150 million left over. It also has a cash-rich balance sheet and lots of liquidity. These features allow it to continue acquiring experiential real estate, so it can grow its dividend in the future.
A profit-backed payout
STORE Capital currently pays a dividend yielding 5.7%. The REIT backs that payout with a portfolio of operationally critical real estate leased to service, manufacturing, and service-oriented retail companies. It focuses on owning profitable properties, requiring its tenants to send financial statements to certify profitability; that puts its rental income on an even firmer foundation.
NYSE: STOR
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The REIT further backs its high-yielding payout with the second-lowest dividend payout ratio in its peer group. It also has a solid investment-grade credit rating. These features enhance its financial flexibility, helping it to continue growing its portfolio of income-producing real estate. This strategy has helped STORE Capital to increase its dividend at a 6.1% compound annual rate since its initial public offering. Its continued expansion should allow it to keep growing its dividend.
A healthy payout
Medical Properties Trust has a current dividend yield of 8.2%. The healthcare REIT has increased its big-time payout for eight straight years; since the pandemic began, it's expanded its dividend by 12%. That's impressive, given that six other leading healthcare REITs have reduced theirs by a weighted average of 31% during that time frame.
Medical Properties Trust backs its payout with a solid financial profile; it has an improving dividend payout ratio and a solid balance sheet. The REIT recently picked up $600 million of liquidity by selling some hospitals and receiving the proceeds of a loan balance payoff. That's giving it the flexibility to continue making accretive acquisitions so it can keep growing the payout.
NYSE: MPW
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More ways to grow
W.P. Carey's dividend is right around 5%. The diversified REIT has an excellent track record of growing that payout, increasing it every year since going public in 1998.
W.P. Carey backs its dividend with a diversified portfolio of operationally critical real estate. It owns properties in the warehouse, industrial, office, retail, and self-storage sectors across the U.S. and Europe, leased to high-quality tenants that operate the properties. That diversification gives it more acquisition opportunities.
The REIT also has a reasonable dividend payout ratio and a solid investment-grade balance sheet. That gives it the financial flexibility to continue acquiring income-producing properties so that it can keep boosting the dividend.
These REITs turn cash into cash flow
It doesn't take much money to start: A $1,000 investment in any of these REITs would produce more than $50 of passive income each year, thanks to their big-time dividend yields. Even better, all four should be able to continue growing their ultra-high-yielding dividends. That makes them ideal options if you're seeking to make some passive income.
