Investing in real estate can be an ideal method of generating passive income. Rental properties often produce more than enough cash to cover expenses. That provides their owners with attractive income streams.
While owning a rental property is technically a passive investment, they're often a lot of work. On the other hand, real estate investment trusts (REITs) are truly passive. You buy shares and then sit back and collect the dividend income. Camden Property Trust (CPT 0.54%), Realty Income (O 0.11%), and W. P. Carey (WPC 0.16%) are great REITs for those seeking to start earning more passive income this June.
The lazy way to be a landlord
Many beginning real estate investors buy rental housing, like single-family rental homes or small multifamily properties. While those investments can generate income, the cash flow tends to be lumpy (due to unexpected repairs and vacancies), and these investments take work (managing maintenance and tenants). It also requires a rather sizable up-front investment, including a downpayment, closing costs, and any needed repairs/renovations to make the property ready to rent.
Camden Property Trust is a great alternative to buying a residential rental property. The residential REIT owns over 170 apartment communities with nearly 60,000 rental units. It's also investing in developing six additional communities with almost 2,000 homes, including two single-family rental communities.
Investors gain access to that diversified portfolio at a super low cost (shares are currently right around $100 a piece). Meanwhile, their investment would generate truly passive (and steady) dividend income. The REIT pays a quarterly dividend that currently yields nearly 4%. Every $1,000 invested into buying Camden Property stock would produce about $40 of annual dividend income at that rate. That fixed payment would likely grow as rents rise and Camden expands its portfolio.
Living up to its name
Realty Income's mission is to pay a dependable monthly dividend that grows over time. It has certainly delivered on that objective. The REIT has paid 635 consecutive monthly dividends and increased its payout 120 times since its public market listing in 1994.
The retail-focused REIT has steadily diversified its portfolio into new property types like industrial, entertainment, and agricultural. It leases these properties back to the operating tenants under long-term, triple-net leases (NNN), making the tenant responsible for the variable costs of maintenance, building insurance, and real estate taxes. That provides the REIT with very stable cash flow to pay dividends.
Meanwhile, Realty Income has a very solid financial profile. That enables it to continue acquiring income-producing real estate. The company sees a massive opportunity to keep buying properties in its existing areas and new ones. It has recently expanded into the gaming, vertical farming, and consumer-centric medical sectors, and made its first acquisition in Italy as it moves deeper into Europe. Future acquisitions should enable Realty Income to continue growing its more than 5%-yielding dividend.
Dual growth drivers should keep pushing the payout higher
W. P. Carey is an even more diversified REIT that owns properties in the industrial, warehouse, office, self-storage, retail, and hotel sectors. It focuses on owning operationally critical properties that it leases to high-quality tenants under NNN agreements. That gives the company a solid income base to support its more than 6%-yielding payout.
Nearly all the REIT's leases feature annual rental-rate escalation clauses, with half tied to inflation. Given the current high inflation rate, those leases supply it with lots of embedded growth. CEO Jason Fox commented in the first-quarter earnings release:
And even though there is evidence that inflation is beginning to cool, we expect our contractual same-store rent growth to remain elevated -- averaging around 4% in 2023 and over 3% in 2024 -- given the lag on which CPI-linked escalations flow through to rents.
That provides an excellent base for dividend growth. W. P. Carey also has a long history of making accretive acquisitions. Its diversified mandate gives it lots of flexibility to find accretive investments. Last year, the company acquired over $1.4 billion of properties, two-thirds of which were warehouse and industrial, with roughly that same percentage of its deals in North America and the other third in Europe. The company sees a ripe environment for deals this year, believing it could acquire over $2 billion in real estate.
The dual growth drivers of contractual rental increases and acquisitions should enable W. P. Carey to continue increasing its dividend. The REIT has given its investors a raise every year since its public market listing in 1998.
Great ways to boost your income this month
REITs make it easy for anyone to generate truly passive income from real estate. Camden Property Trust, Realty Income, and W. P. Carey are excellent options. All three REITs offer attractive-yielding dividends that they should be able to continue growing. That makes them great stocks for investors to buy this June to pad their passive income.
