Real estate dividend stocks are great options for investors seeking to collect passive income. Commercial real estate tends to generate recurring rental income, enabling companies focused on owning real estate to pay attractive dividends.

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Here's a closer look at some of the best dividend-paying stocks in the commercial real estate sector.

Top real estate dividend stocks

Most companies focused on owning income-producing commercial properties utilize a real estate investment trust (REIT) structure. REITs must pay dividends to maintain their tax advantages. Because of that, many of the top real estate dividend stocks are REITs.

However, REITs aren't the only real estate stocks that pay a compelling dividend. Here's a look at some of the top real estate dividend stocks:

Data source: Ycharts. Market cap data as of June 8, 2022.
Real Estate Dividend Stock Ticker Market Cap Description
Blackstone Group (NYSE:BX) $87.3 billion A leading alternative asset manager.
Federal Realty Investment Trust (NYSE:FRT) $8.9 billion A REIT focused on shopping centers.
Essex Property Trust (NYSE:ESS) $18.5 billion A REIT focused on apartment communities along the West Coast.
Kennedy Wilson Holdings (NYSE:KW) $2.9 billion A global real estate investment company.
Realty Income (NYSE:O) $40.9 billion A REIT focused on owning freestanding properties.

Blackstone Group

Blackstone Group is the world's largest alternative asset manager. As of mid-2022, it had $915 billion of assets under management in investment vehicles focused on private equity, real estate, hedge fund solutions, and credit and insurance. Blackstone is a global leader in real estate investing, with $298 billion of real estate assets under management.

Blackstone has a unique dividend payment policy. It doesn't pay a fixed quarterly rate that it aims to increase gradually each year. Instead, it pays out a portion of its distributable earnings each quarter in dividends, retaining some cash for other purposes, including repurchasing shares. While this causes Blackstone's dividend to fluctuate each quarter, the company has historically offered an above-average dividend yield. Over the past 12 months, Blackstone has had a 3.8% dividend yield.

The company should be able to continue paying an attractive dividend. Blackstone generates significant fees from managing real estate and other assets for investors, providing it with lots of cash to pay dividends. With investors increasingly allocating more capital to alternative investments such as private real estate, Blackstone's fees should keep rising, enhancing its ability to pay dividends.

Federal Realty Investment Trust

Federal Realty Investment Trust is one of the best dividend stocks in the real estate sector. The retail REIT delivered its 54th consecutive year of increased dividends in 2021. That's the longest streak of annual dividend increases in the REIT sector and qualifies Federal Realty as a Dividend King. As of mid-2022, Federal Realty offered an above-average dividend yield approaching 4%.

The REIT has consistently increased its payout by focusing on high-quality shopping centers in major coastal markets. It also has a conservative dividend payout ratio for a REIT -- 72% of its 2022 funds from operations (FFO) per share at the midpoint of its guidance range -- and a strong balance sheet. Those features give the company the financial flexibility to sustain its dividend while also investing in expanding its portfolio.

Federal Realty focuses on acquiring high-quality shopping centers in desirable locations across major coastal metro areas. It also invests in developing and redeveloping properties to make them more appealing to shoppers and tenants. That has included building more than 3,400 residential units at its properties, along with hotels and office buildings. The investments have diversified its revenue streams while reducing the potential impact of rising e-commerce adoption on its properties.

Essex Property Trust

Essex Property Trust also has a long history of increasing its dividend. The apartment-focused residential REIT delivered its 28th consecutive annual dividend increase in early 2022. Essex Property Trust provided investors with an above-average dividend yield of more than 3% in mid-2022.

One of the keys to Essex Property's success is its focus on high-demand coastal markets. The REIT has benefitted from above-average rent growth. It also has a conservative dividend payout ratio and a strong balance sheet, enabling the company to pay a sustainable dividend while expanding its apartment portfolio.

The REIT has multiple external growth drivers. The company often works with joint venture partners to acquire apartment communities. It will make preferred equity investments in multifamily communities that supply it with steady cash flow. Essex also invests in development projects to build new apartment homes. These investments have enabled the REIT to steadily increase its cash flow to support consistent annual dividend increases.

Kennedy Wilson Holdings

Kennedy Wilson is a leading global real estate investment company. It owns, operates, and invests in real estate directly and through its investment management platform. The company concentrates on multifamily and office properties in the western U.S., the U.K., and Ireland.

Kennedy Wilson is unique among large commercial real estate owners because it's not a REIT. Instead, it's a regular corporation for tax purposes. However, it still offers investors an attractive dividend that yielded more than 4.5% in mid-2022. Although Kennedy Wilson hasn't increased its dividend every year, it has a long history of dividend growth. That makes it an appealing option for investors who want to collect dividend income from real estate outside of a REIT.

Kennedy Wilson has several growth drivers. The company benefits from steadily increasing rental rates at its properties, rising fees from the real estate funds it manages, and a steady stream of new investments. The company has a solid balance sheet and longstanding partnerships with several institutional investors, giving it ample capital to continue expanding its real estate portfolio.

Realty Income

Realty Income is another REIT with an excellent dividend growth track record. The company pays a monthly dividend that yielded more than 4% as of mid-2022. The REIT had increased its payout 115 times since its initial public offering in 1994, including in each of the past 98 straight quarters as of mid-2022. That's more than 25 consecutive years, qualifying Realty Income as a Dividend Aristocrat. It makes Realty Income a great option for those seeking to collect passive income from real estate.

One of the keys to Realty Income's success is its focus on owning freestanding properties net leased (NNN) to high-quality tenants. The lease structure makes the tenant responsible for maintenance, building insurance, and real estate taxes, enabling Realty Income to collect stable rental income. The REIT also focuses on owning properties resistant to disruption from e-commerce and economic downturns, such as pharmacies, convenience stores, warehouses, and grocery stores.

Realty Income has a long history of increasing its portfolio by completing sales-leaseback transactions with the operating tenant. The deals provide the operating company with cash to expand while supplying Realty Income with more income-producing properties. The REIT has a conservative dividend payout ratio – around 75% in 2022 – and a top-tier balance sheet. That gives it the financial flexibility to expand its portfolio to drive steady dividend growth.

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Many ways to collect dividend income from real estate

Real estate typically generates stable rental income, providing companies focused on owning commercial real estate with steady cash flow to support attractive dividends. Although REITs are often the best real estate dividend stocks, they're not the only real estate-focused companies that pay above-average dividends. Investors have a variety of options for collecting passive income from the real estate sector.

Matthew DiLallo has positions in Blackstone and Realty Income. The Motley Fool has positions in and recommends Blackstone and Realty Income. The Motley Fool has a disclosure policy.