Many of us are used to going out and earning money at a job, whether it involves physical work or hours on end hunched in front of a laptop. But what if there were a way to earn money without having to do a thing?
Such a concept exists within the world of investing. It's known as passive income, and there are different ways you can go about generating it. One option, in fact, is to sit back and collect steady dividends. And there's one specific type of investment that could pay quite generously in that regard.
Load your portfolio with REITs
There are many publicly traded companies that pay generous dividends, and it's important to invest in those with solid long-term growth potential. But a good starting point in your quest for passive income is to look at REITs, or real estate investment trusts.
REITs are companies that derive revenue from owning and operating different types of properties. And they're also known to pay strong dividends.
There's a reason for that: REITs, due to their structure, get to enjoy certain tax benefits. As a result, though, they're required to pay at least 90% of their net income to investors as dividends. Because of this, REITs commonly pay higher dividends than your average stock.
Also, when you own dividend stocks, those payments aren't guaranteed. But due to the aforementioned requirement, you're less likely to run into a skipped dividend payment situation when you invest your money in REITs.
What type of REITs should you buy?
REITs can generally be broken down into different sectors, some of which may be a better fit for your portfolio than others. One sector worth looking at these days is industrial REITs. The reason? The pandemic caused a huge shift to e-commerce, and digital sales have been booming since mid-2020. That's caused an uptick in warehousing space demand -- something industrial REITs are poised to benefit from in the near term as well as the long term.
You may also want to look at hospitality REITs, since right now, they're enjoying a pretty solid comeback. Earlier on in the pandemic, hotels and resorts took a beating as consumers stopped traveling. But now, travel demand is up, and consumers are more willing to spend money on vacations with pandemic restrictions being off the table.
Then there are healthcare REITs. What makes these a good buy is that they're pretty much recession proof. Even if the economy takes a turn for the worse, patients will need to visit urgent care centers and hospitals. And so while we may not see the same explosive growth out of healthcare REITs as we might see with industrial REITs, investors could enjoy nice, stable growth.
All told, there are different REIT sectors you can dabble in, so it pays to do some research and see which best align with your investing strategy. But either way, if you like the idea of generating passive income, REITs are definitely worth looking into.