Successful dividend investors know that simply chasing the highest yields can lead to disaster. By finding companies that can sustain and grow their payouts through various market cycles, everyday investors can confidently assemble a portfolio that produces a steadily growing stream of passive income.
Right now, Reality Income (O -0.76%) and Healthpeak Properties (DOC -0.65%) are perfect examples of companies well positioned to raise their dividend payouts regardless of what happens to the overall economy.
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You won't have to wait around before they start delivering a significant amount of income to your brokerage account. Both stocks offer yields above 5% at recent prices.
1. Realty Income
Individual investors looking for a steadily growing stream of passive income have gotten their wish from Realty Income. Since going public in 1994, this real estate investment trust (REIT) has raised its dividend payout 132 times, or nearly every quarter. At recent prices, the stock offers a huge 5.4% dividend yield that it delivers in convenient monthly payments.
Each payout bump is relatively small, but they add up over time. Realty Income's payout has risen by 46% over the past 10 years.
Realty Income doesn't operate the buildings it owns. It gets tenants to sign net leases that transfer all the variable costs associated with building ownership, such as taxes and insurance, to the tenant. This leads to such reliable cash flows that the REIT boasts an A3 credit rating from Moody's.
With its enviable credit rating, Realty Income can offer businesses a relatively inexpensive source of capital through sale-leaseback transactions. Despite already having 15,606 buildings in its portfolio, there's still plenty of room for this real estate investment trust to keep growing. In the U.S., publicly traded net lease REITs like Realty Income account for 4% of their addressable market. This figure is just 0.1% in Europe.
With an occupancy rate of 98.6% at the end of June, Realty Income expects adjusted funds from operations (FFO), a proxy for earnings used to evaluate REITs, to land in a range between $4.24 and $4.28 per share this year. This is plenty more than it needs to meet a dividend payout currently set at $3.234 per share. With a well-funded payout and plenty of room to grow, adding this stock to a diversified portfolio is the right move for most income seeking investors.
2. Healthpeak Properties
If there's one thing income-seeking investors hate, it's a dividend reduction. Healthpeak is a specialized net lease REIT that caters to biotech start-ups, big pharmaceutical companies, and everything in between. Interest in biotech start-ups has declined in recent years, which led Healthpeak to merge with Physicians Realty Trust, an owner of medical office buildings and senior housing properties, last year.
Healthpeak lowered its dividend payout to account for all the extra shares it took on to merge with Physicians Realty. The stock price has fallen so far, though, that it offers a huge 6.5% yield at recent prices. Like Realty Income, it distributes dividend payments every month.
Taking on medical office buildings could allow Healthpeak Properties to maintain its dividend payout, which is currently set at $1.22 annually. This year, the REIT expects adjusted FFO in a range between $1.81 and $1.87 per share.
By 2030, all baby boomers will be at least 65 years old, and they're going to need a lot of medical attention. With heaps of medical office buildings and senior housing properties in its portfolio, Healthpeak is well positioned to ride this wave.
