Many companies pay dividends. However, some businesses stand out for their ability to pay a durable dividend. They've proven they can continue paying (and growing) their dividends even during the most challenging economic times. Because of that, they make excellent long-term passive income investments.
Stag Industrial (STAG 0.20%), W. P. Carey (WPC 0.16%), and Realty Income (O 0.11%) have been passive income machines over the years. They offer investors higher-yielding payouts that have proven durable. Because of that, they stand out to a few Fool.com contributors as excellent stocks to buy and hold for a lifetime of passive income.
This warehouse and factory landlord makes a solid investment choice
Marc Rapport (Stag Industrial): "Forever" is a relative term, of course, but here it means buying shares of stock in a company with no intention of selling for a very long time. Passive income, of course, is the money you're paid in dividends for simply owning that stock all along the way.
Real estate investment trusts (REITs) are good companies for passive income seekers because they're required to distribute at least 90% of their taxable income to shareholders. One that I own now and have no plans to sell -- unless things change, of course -- is Stag Industrial.
Stag is an industrial REIT that currently owns about 111 million square feet contained in 563 warehouses, distribution centers, and manufacturing facilities in 41 states. This kind of real estate has been in high demand and with the growth of e-commerce and logistics, that's likely to continue.
This chart shows how well this REIT has rewarded shareholders compared to the S&P 500 since the company went public in 2011.
STAG Total Return Level data by YCharts
As for its passive income credentials, Stag pays monthly, which is nice for retirees and others who like a smooth income stream, and it has raised its dividend for five straight years.
The stock currently yields about 4.2% at a share price of about $35 and it has a payout ratio of about 58% based on cash flow that points to not only the ability to easily cover the dividend, but to raise it as time goes on.
Rock-solid financials and a geographically diverse and growing portfolio occupied by top-shelf shippers, successful manufacturers, and e-commerce titans like Amazon earn Stag a place in that group of buy-and-holds that could merit the "forever stock" badge.
As steady as they come
Matt DiLallo (W. P. Carey): Commercial real estate giant W. P. Carey has a tremendous track record of supplying its investors with passive income. The diversified REIT has increased its dividend every year for almost 25 years.
The company has plenty of fuel to keep that income machine going. It owns a diversified portfolio of operationally critical commercial real estate leased to high-quality tenants. It net leases those properties, meaning the tenant covers maintenance, building insurance, and real estate taxes. These features enable W. P. Carey to collect very steady rental income.
It pays out a reasonable amount of its cash flow (less than 80%) to investors via dividends. That gives it a decent cushion and allows it to retain some cash to fund new investments. Meanwhile, W. P. Carey has a solid investment-grade balance sheet. It has a low leverage ratio, primarily fixed-rate debt, and well-staggered debt matures. That enhances its financial flexibility, giving it additional capacity to make new investments.
W. P. Carey expects to acquire another $2 billion of income-producing real estate this year. In addition, the lease rates across nearly all of its existing portfolio escalate annually, either at a fixed rate or one tied to inflation. With inflation elevated, rents are growing at an above-average rate. These two drivers will grow its rental income, allowing the REIT to continue increasing its dividend.
W. P. Carey's dividend currently yields a very attractive 5.9%. With that payout likely to continue rising, it's a great passive income producer to buy and hold for the long haul.
Realty Income is a good defensive REIT
Brent Nyitray (Realty Income): Realty Income is a real estate investment trust that specializes in single tenant buildings under an unusual lease structure called a triple-net lease. This is different than the gross lease, which is the most common.
Under a triple-net lease, the tenant absorbs almost all of the costs, including rent, taxes, maintenance, and insurance. Under a gross lease, the tenant pays rent and the landlord absorbs the other costs. Gross leases are more common in apartments and shopping malls.
Under the triple-net arrangement, leases generally last a long time (over a decade) and are notoriously hard to break. This means that the REIT must vet its tenants carefully and ensure they can successfully navigate the entire economic cycle. The best type of tenant is defensive, which means the good or service it sells has steady demand, even during recessions.
Realty Income's typical tenant is a drug store, convenience store or dollar store. Its biggest tenants include Dollar General, Walgreens Boots Alliance, and 7-Eleven -- but it remains diversified. Only Dollar General accounts for 4% of rental income, with all other tenants below 4%. As of the end of 2022, the company owned or held an interest in 12,237 properties in all 50 states and overseas with 238.6 million square feet.
Realty Income pays a monthly dividend, and has a long track record of several dividend increases per year. At current levels, the stock has a dividend yield of 4.9%. The company is guiding for adjusted funds from operations (AFFO) to come in between $3.94 and $4.03 per share next year. At the midpoint of guidance, Realty Income is trading at 15.6 AFFO per share, which is reasonable for a market leader.
