Hundreds of publicly traded companies pay dividends. However, some stand out for their ability to maintain their dividends, offer higher yields and have excellent records of increasing their payouts. That makes them ideal for investors seeking passive income.
Three premium dividend stocks are VICI Properties (VICI -1.61%), W. P. Carey (WPC -1.20%), and Prologis (PLD -1.15%). Here's why some Fool.com contributors believe they're great buys for those seeking long-term passive income investment opportunities.
This REIT lets you own the house instead of betting it
Marc Rapport (VICI Properties): They say the house always wins. And indeed it must, or gambling wouldn't be one of mankind's most enduring pastimes.
But why gamble when you can invest? Buy shares of VICI Properties and you're taking a stake in the owner of such legendary properties as the Venetian, MGM Grand, and Caesars Palace on the Las Vegas Strip and much more.
VICI is a real estate investment trust (REIT) formed as a spinoff of the bankruptcy reorganization of Caesars Entertainment and now is the net-lease owner of 49 gambling facilities, 59,300 hotel rooms, and more than 450 restaurants, bars, clubs, and sportsbooks across the U.S. and Canada. Net lease means the tenant bears most of a property's operating costs, such as maintenance, insurance and taxes.
Four championship golf courses also chip in to the cash flow that has powered this REIT to a total return that has nearly doubled that of the S&P 500 since VICI's initial public offering in February 2018.
VICI Total Return Level Data source: YCharts
VICI shares yield about 4.9% right now, nearly triple the 1.7% or so of the S&P 500, and the hospitality REIT has raised its payout every year since going public.
Solid financials and the enduring ability of casinos, especially the glitzy ones, to attract gamblers and their cash should keep this dividend machine reliably cranking out the passive income.
Dual dividend growth drivers
Matt DiLallo (W. P. Carey): W. P. Carey has been a premium income producer. The real estate giant pays an above-average dividend (it currently yields 5.4% vs. 1.7% for the S&P 500). It also has an elite track record of increasing its payout. The REIT has given investors at least one raise each year since its public market listing in 1998.
W. P. Carey's high-quality real estate portfolio is a big factor driving its ability to steadily increase the dividend. The REIT owns a diversified portfolio of operationally critical real estate across the warehouse, industrial, retail, office, and self-storage property sectors in the U.S. and Europe. It primarily utilizes long-term net leases featuring escalation clauses that enable it to increase rents each year at either a fixed rate or one tied to inflation.
The company complements internal rental growth with a steady diet of acquisitions. The REIT made more than $1.4 billion in acquisitions last year. Meanwhile, it entered 2023 with about $700 million of deals in its pipeline. W. P. Carey has a long runway to continue making acquisitions since $13 trillion of owner-occupied real estate across the U.S. and Europe is suitable for net leases. The company has a solid investment-grade balance sheet with lots of liquidity, giving it the financial flexibility to continue making acquisitions.
W. P. Carey's rental income and an ever-expanding portfolio should continue to increase its cash flow. That should allow W. P. Carey to keep raising the dividend.
Prologis benefits from a corporate rethinking of inventory management
Brent Nyitray (Prologis): Prologis is a premier logistics real estate investment trust. The company owns or operates 5,495 buildings with 1.2 billion square feet around the globe. If you drive along any of the major corridors in the U.S., you will probably see massive structures with dozens of truck bays. These logistics facilities are used by retailers, transportation/logistics companies and manufacturers to store goods before shipment. About 44% of Prologis capacity is used by retailers and wholesalers, while another 40% is used by transportation and third-party logistics companies. Manufacturers round out the balance.
Prologis estimates that $2.7 trillion in goods flow through its distribution centers each year, which represents about 2.8% of global gross domestic product. The COVID-19 pandemic exposed the vulnerability of having extended supply chains. Before the pandemic, businesses viewed inventory as a cost to be minimized. Decades of just-in-time inventory management led corporations to hold the bare minimum. The COVID-19 pandemic revealed the downside of this approach, as retailers found themselves with empty shelves and assembly lines were waiting for parts.
The market for logistics space is extremely tight, and Prologis ended 2022 with a 98.2% occupancy rate. The company is seeing a 67% increase in rents when new leases are signed at prevailing market rates. The difference between current lease levels and newly signed leases will contribute to growing earnings for the next several years. Prologis is projecting 2023 funds from operations (FFO) per share -- an important measure of REIT performance -- of between $5.40 and $5.50 per share. This gives the company a price-to-FFO ratio of 22 times, in line with top-quality REITs. It also has a dividend yield of almost 3%.
