If you want to build up a reliable stream of passive income, buying real estate is a well-worn path that can get you there. That said, most of us have limited options regarding the types of income-generating properties we can acquire.
Not many folks have enough cash lying around to build a new hospital. Even an outpatient surgery center requires far more capital than most can imagine controlling. Luckily, plenty of specialized real estate investment trusts (REITs) let everyday investors get in on the action, too.
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If you have $1,000 burning a hole in your pocket -- that you won't need to pay bills or cover unforeseen emergencies -- you could begin generating significant levels of dividend income with these REIT stocks. Read on to see whether they're right for you.
Medical Properties Trust
Medical Properties Trust (MPW -1.10%) recently cut its dividend payment nearly in half to $0.15 per share. The stock fell sharply in response to the dividend reduction, and at recent prices, the shares offer a juicy 8.5% yield.
As a REIT, Medical Properties Trust can avoid paying income taxes by returning at least 90% of its profits to shareholders as a dividend. This particular REIT gets hospital operators to sign net leases that make them responsible for all the variable expenses associated with building ownership, such as maintenance and taxes.
While net leases make cash flows generally reliable, the COVID-19 pandemic and its repercussions created challenges that some of the REIT's largest clients are still struggling to overcome. As a result the company recently slashed its dividend nearly in half.
The new payout works out to just 15% of trailing-12-month funds from operations (FFO), a proxy for earnings used to evaluate REITs. Recent property sales are expected to lower FFO enough that the company thinks its new dividend will consume roughly 60% of FFO going forward.
Hospital expenditures are responsible for more than 30% of America's $4.3 trillion annual healthcare bill, and the figure is rising. More than 10,000 Americans turn 65 every day, and this growing population of older adults will need a lot of hospital beds. This stock could be volatile in the quarters ahead, but ever-increasing hospital demand gives it a good chance to grow its payout steadily over the long run.
American Tower
You might not think of cellphone towers as rental properties, but American Tower (AMT -0.70%) sure does. This REIT owns over 205,000 towers worldwide, making it the go-to landlord for businesses needing access to communications real estate.
American Tower's largest U.S. tenant is Verizon, which leases around 11,250 sites. With an average of 20 years remaining on its Verizon leases and annual rent escalators built into those leases, American Tower's cash flows will be relatively predictable.
This year, management expects $9.70 in adjusted FFO per share. That should be more than enough to cover a dividend that currently works out to an annualized $6.28 per share.
At recent prices, American Tower shares offer a 3.5% yield. This may not seem like much up front, but income-seeking investors will be glad to learn it's steadily raised its payout by 99% over the past five years.
The ongoing rollout of 5G internet in the U.S. and around the globe gives American Tower what it needs to continue raising its payout for many years to come. That said, rising interest rates will likely slow its pace of dividend raises for at least another year or two. However, patient investors who hold on for the long run could realize market-beating gains once rates stabilize again.
