My top financial goal is to achieve financial independence. I want my investment portfolio to generate enough passive income to cover my basic living expenses. That would future-proof my finances if AI were to impact my livelihood.
I work toward this goal every month by investing a portion of my earnings into income-generating investments. This month, I plan to buy more shares of Medical Properties Trust (MPW 1.35%), Mid-America Apartment Communities (MAA 0.60%), and W.P. Carey (WPC 0.14%). Here's why I think these three real estate investment trusts (REITs) are ideal investments for my passive income strategy.
Image source: Getty Images.
Finally getting healthier
Medical Properties Trust has faced a series of challenges over the past few years. Two of its largest tenants went bankrupt, impacting its rental receipts. That came as interest rates soared, making it difficult for the healthcare REIT to refinance debt as it matured. That forced the hospital owner to cut its dividend twice.
However, the REIT has taken actions that have strengthened its tenant base and balance sheet. It has replaced its financially troubled tenants with stronger operators. Medical Properties Trust has also sold several properties to repay maturing debt. These moves have improved its financial situation, allowing it to obtain new financing to refinance additional maturing debt.
NYSE: MPW
Key Data Points
Medical Properties Trust's new tenants are on track to pay steadily rising rental rates through the end of next year as they ramp up their operations. Once rents reach their fully stabilized rates in late 2026, the REIT's annualized rental income from its current portfolio will exceed $1 billion. That will put the company's current 6.4%-yielding dividend on an even more sustainable footing. Medical Properties could start rebuilding its dividend in the coming years as it begins making new investments to expand its portfolio.
Well positioned to cash in on the coming recovery
Mid-America Apartment Communities has also battled some headwinds in recent years. An apartment building boom, fueled by lower interest rates following the pandemic, has driven a surge of new supply across its markets. That has slowed rent growth to a crawl.
NYSE: MAA
Key Data Points
However, solid demand and fewer new apartment completions in the coming years should drive a reacceleration in rent growth. Mid-America has further positioned its business to capitalize on the coming recovery by investing heavily to expand its apartment portfolio. It has acquired several apartment communities over the past year, including the recent purchase of a 318-unit community in Kansas City. The company has also approved several new apartment developments and secured more land to support its future expansion.
As a result, the company has built "momentum that will fuel earnings growth for years to come," stated CEO Brad Hill in the third-quarter earnings press release. That positions the REIT to continue increasing its dividend, which currently yields 4.7%. Mid-America has raised that payment for 15 straight years, including by 3.1% last December.
The rebuild is working
W.P. Carey has spent the past few years reshaping its portfolio. The diversified REIT made the strategic decision to exit the office sector in late 2023 by selling and spinning off those properties. It has also sold off a large portion of its self-storage properties and some other non-core assets. As a result, W.P. Carey reset its dividend in late 2023 due to the loss of income from these sales.
NYSE: WPC
Key Data Points
The REIT has been recycling the capital from these sales into new properties with better long-term growth drivers, such as industrial real estate. It has spent $1.6 billion on new properties so far this year, putting it on track to close $1.8 billion to $2.1 billion of new investments.
These new investments, along with contractual rent growth embedded in its long-term leases, are driving earnings growth. W.P. Carey's adjusted funds from operations (FFO) rose by 5.9% per share during the third quarter. This growing cash flow has enabled the REIT to increase its dividend. It has raised its payment every quarter since early 2024, including a 4% increase over the past 12 months, which has boosted its current yield to 5.5%. With a strong financial profile, healthy embedded rent growth, and a robust pipeline of investment opportunities, W.P. Carey anticipates even more growth ahead in 2026.
Positioned to produce durable and growing passive income
Medical Properties Trust, Mid-America Apartment Communities, and W.P. Carey have all faced some headwinds in recent years. However, the REITs have responded to those challenges by repositioning their portfolios and balance sheets to better weather future issues, thereby making their dividends more durable in the process. Their combination of high current yields and dividend growth potential makes them ideal dividend stocks to buy in support of my passive income strategy.
