Most of us go to a retail store at least once a week. We shop for groceries, pick up a prescription, grab snacks, or buy something to tackle a repair project. We're often so focused on the money we're spending that we don't see the income potential hiding in plain sight.
Investing in retail real estate can be a great way to generate passive income that can last a lifetime. A super-easy way to cash in on the income-generating ability of retail properties is through a real estate investment trust (REIT) focused on the sector. Realty Income (O +0.70%), Agree Realty (ADC +0.67%), and NNN REIT (NNN +0.92%) are three great retail REITs to buy for enduring dividend income.
A very durable dividend
NYSE: O
Key Data Points
Realty Income is one of the largest REITs. It owns over 15,450 commercial properties across the U.S. and Europe. Retail properties comprise the bulk of its portfolio (81.8% of its annual base rent). It also owns industrial properties (12.7%), gaming properties (3.9%), and other real estate (1.6%).
The REIT focuses on owning free-standing retail properties net leased to tenants in industries resilient to economic downturns and isolated from the pressure of e-commerce. Its top tenants are grocery stores (11.4% of its annual base rent), convenience stores (10.2%), dollar stores (7.1%), home improvement (5.9%), and drug stores (5.5%). Many are well-known U.S. national brands like Dollar General, Walgreens, and Walmart.
Realty Income's portfolio produces highly stable income. It pays investors three-quarters of its steady cash flow via its monthly dividend (which currently yields 5.7%). It retains the rest to invest in acquiring additional income-producing properties. Those investments have enabled the REIT to grow its dividend steadily (124 increases since 1994). That steady upward trend should continue in the decades ahead.
Very stable rental income
NYSE: ADC
Key Data Points
Agree Realty owns over 2,100 retail properties. It primarily focuses on leasing its properties to investment-grade retailers (69.1% of its portfolio) in sectors resistant to the pressure of e-commerce and recessions. Grocery stores (9.6% of its annualized base rent), home improvement (8.7%), tire and auto service (8.6%), convenience stores (8.3%), and dollar stores (7.6%) make up its five largest tenant sectors. Walmart (6.1%), Tractor Supply (5.1%), and Dollar General (4.8%) are its top three tenants.
The REIT owns properties net leased (88.3%) or ground leased (11.7%) to tenants. Those lease structures supply it with very stable cash flow. Net leases require tenants to cover building insurance, maintenance, and real estate taxes. Meanwhile, ground leases are for the land under the building and provide a bond-like income stream.
Agree Realty also pays out about three-quarters of its steady rental income via a monthly dividend (currently yielding 5.2%). It retains the rest to help fund new income-generating retail property investments. The company's steadily growing portfolio has enabled it to increase its dividend at a 6.1% compound annual rate over the last 10 years. That steady upward trajectory should continue.
Focused on growth
NYSE: NNN
Key Data Points
NNN REIT focuses on owning retail properties that are triple net leased (NNN) to growing national and regional brands. The company owns more than 3,500 properties leased to about 400 tenants, led by 7-Eleven (4.4% of its annual base rent), Mister Car Wash (4.2%), and Camping World (3.8%). Meanwhile, its top tenant sectors are convenience stores (16.4%), automotive service (15.6%), full-service restaurants (8.7%), limited-service restaurants (8.5%), and family entertainment (6.4%).
The REIT takes more of a higher-risk, higher-reward approach. It focuses on working with expanding retailers that need capital to fund their growth due to lower credit ratings. That enables it to earn higher initial cash yields on new sale-leaseback acquisitions. However, it balances that slightly higher tenant risk profile with a lower dividend payout ratio (68%).
NNN REIT's strategy has certainly paid dividends for its investors over the years. It has increased its payout for 34 straight years. The REIT has ample financial flexibility to expand its portfolio as its tenants grow their retail footprints. That should enable it to continue increasing its dividend (currently yielding 5.3%).
Premium passive income producers
Realty Income, Agree Realty, and NNN REIT likely own many of the retail properties you frequently shop at to buy essentials like food, healthcare products, and household items. Those retailers typically pay rent for the real estate they need to operate their businesses. That's an income opportunity hiding right in front of you. Investing in their landlords could enable you to collect a stable and growing income stream that could last your lifetime.
