Investing in real estate is a popular method of generating passive income. However, you don't need to buy a rental property to earn income from the sector. A much easier option is to invest in a real estate investment trust (REIT).
Prologis (PLD 2.01%), Realty Income (O 1.28%), and Camden Property Trust (CPT 2.19%) are excellent REITs for those seeking to collect durable income. Here's why they stand out as great income options.
Cashing in on growing warehouse demand
NYSE: PLD
Key Data Points
Prologis is the leading industrial REIT. The company owns interests in over 5,600 warehouses across North and South America, Europe, and Asia. It leases space in its warehouses to tenants across various industries. Those leases supply it with steady rental income. It uses that money to pay a growing dividend (currently yielding 2.6%) and invest in expanding its portfolio.
Demand for warehouses is durable and growing, driven by the rising adoption of e-commerce. Prologis is in an excellent position to capitalize on this trend. It owns a vast land bank that could support $40 billion of future development. The company also has an elite balance sheet, giving it the financial flexibility to invest in development projects and make acquisitions.
Prologis' growth drivers and financial strength should enable it to continue boosting its dividend. It has increased its payout at a more than 12% compound annual rate over the last five years, double the pace of the S&P 500. Given its financial strength and catalysts, it should be able to continue lifting its dividend in the decades to come.
Built to generate income
NYSE: O
Key Data Points
Realty Income built its business to support dependable monthly dividends that rise over time. The diversified REIT owns 13,250 retail, industrial, gaming, and other properties across the U.S. and Europe. The company focuses on properties leased to tenants immune to disruption from e-commerce and economic downturns (e.g., grocery stores and warehouses). These features enable it to generate very durable rental income to support its 5.9%-yielding dividend.
The REIT has increased its monthly payout 123 times since its public market listing in 1994, including for the last 105 straight quarters. Realty Income expects to continue boosting its dividend in the future.
The company aims to grow its adjusted funds from operations (FFO) by 4% to 5% per year. Growth drivers include rising rental rates, acquisitions, and development projects. Realty Income has an elite balance sheet and low dividend payout ratio, giving it the flexibility to continue expanding its portfolio and increasing its monthly dividend. It's routinely adding new growth platforms, including recently making its first investments in data centers and new European markets.
Focused on growing housing markets
NYSE: CPT
Key Data Points
Camden Property Trust is a residential REIT centered on high-growth markets. It owns 172 properties with over 58,600 apartment homes across 15 major markets, predominantly in the South. The company's focus on markets with above-average employment and population growth rates helps drive strong occupancy and rental growth. That provides the REIT with steadily rising income to support its 4.3%-yielding dividend.
The company's pursuit of growth markets also provides new investment opportunities. Camden is investing over $500 million to build five new communities (including two featuring single-family rental homes) that will add over 1,500 units over the next two years. Meanwhile, it has nine more communities under development. It could invest nearly $1.4 billion to build over 3,350 additional homes.
Camden has an strong balance sheet, giving it the flexibility to grow its portfolio and dividend. In addition to development projects, Camden will acquire operating communities and land to support new developments. The company's growth drivers should enable it to continue increasing its dividend in the future.
Durable dividend stocks
REITs are great income-generating investments. They collect steady rental income, giving them stable cash flow to pay dividends that tend to rise over time. That has been the case with Prologis, Realty Income, and Camden Property. Add in the fact that they have three of the best balance sheets in the REIT industry and focus on sectors with enduring demand, and they're great stocks to buy for those seeking long-term income streams.
