Do you like passive income? Here are 3 great actions to help you collect easy cash flow
There are many ways to collect passive income. However, some require more work or money to get started than others. One of the easiest ways to generate passive income is to invest in real estate investment trusts (REITs), entities created by Congress in 1960 to allow anyone to own income-producing commercial real estate.
While most REITs pay dividends to their investors, some are better suited to those looking to generate passive income than others. Three REITs designed for those who love passive income are Real estate income (O 1.09%), Medical Properties Trust (MPW 1.91%)and Residential Equity (EQR 0.87%).
made for this
Matt DiLallo (Property income): Few investments are better suited to generating passive income than Realty Income. The REIT, which is called The Monthly dividend Company, has an excellent track record of paying a sustainable and growing dividend. It has paid 625 consecutive monthly dividends throughout its history. Meanwhile, it has increased the dividend payout 116 times since it went public in 1994 – including the last 99 consecutive quarters – growing it at a compound annual rate of 4.4%.
The backbone of Realty Income’s monthly dividend is its resilient real estate portfolio. The REIT owns nearly 11,300 stand-alone triple net leased properties (NNN) to 1,090 tenants in more than 70 sectors. It primarily focuses on tenants resilient to economic downturns or pressure from rising e-commerce sales. Meanwhile, NNN leases insulate him from variable expenses like maintenance, building insurance and property taxes, allowing him to produce very stable rental income.
Realty Income complements its sustainable portfolio with a top-notch financial profile. It has one of the highest credit ratings in the REIT industry, allowing it to borrow money at more attractive rates to fund acquisitions. Meanwhile, the REIT has a conservative dividend payout ratio of around 75% of its adjusted funds from operations. This provides an additional cushion for the dividend while allowing it to retain cash to fund acquisitions.
The REIT’s growing scale and financial capacity gives it confidence that it will be able to complete more than $5 billion in acquisitions this year. It should have plenty of opportunities as there is approximately $12 trillion of owner-occupied commercial real estate in its core North American and European markets, giving it a wide set of acquisition opportunities. Future transactions should see Realty Income continue to grow its rock-solid monthly dividend, making it a great option for those who enjoy collecting passive income.
Strong dividend history and buying opportunity
Mark Report (Medical Properties Trust): Medical Properties Trust is one of the largest private hospital owners in the world, with approximately 440 properties and 46,000 licensed beds in 10 countries.
Shares of this Birmingham, Alabama-based REIT are down about 30% so far this year, but the company has long nurtured its followers with a nice stream of passive income. And that depressed share price pushed the yield to around 7.3%.
This payment performance is nothing new. MPT has increased its dividend at least a little every year for nine consecutive years, including about 4% per year for the past three years. Since its IPO in 2005, it has provided its shareholders with a total return of 428%, far exceeding the 351% posted by the S&P500 during those same years.
This key metric of funds from operations (FFO), meanwhile, continues to be strong, up 12% in Q1 2022 from the prior year quarter with a very reasonable payout ratio, according to REIT standards, about 62% – indicating continued payouts without a break.
Speaking of FFO, here is another indicator of how cheap the MPT stock may be right now. Its trailing 12-month price-to-FFO ratio per share is currently around 6.2. That’s a lot of money for not that much. By comparing, well towerone of the largest REITs in the healthcare sector, trades at a price/FFO ratio of nearly 27.
Concerns about the company’s ability to continue to grow its portfolio have helped keep its share price down, but CEO Edward Aldag said in the first-quarter 2022 earnings announcement that plans continue to $1 billion to $3 billion in acquisitions this year.
Meanwhile, long-term leases with built-in rent increases and a portfolio that includes a diverse mix of 53 different operators of general acute care hospitals, inpatient rehabilitation, urgent care facilities and of a growing number of behavioral health centers are expected to continue to make Medical Properties Trust a good choice for income investors in the future.
Take advantage of rising house prices
Brent Nyitray (Equity Residential): Equity Residential is a REIT specializing in luxury apartments for young, affluent urban professionals. The Company focuses on select housing markets that have strong job growth and a strong housing market. These markets are generally characterized by a limited housing stock.
Equity Residential’s markets include Southern California, Bay Area, Seattle, Washington, DC, Boston, New York and Dallas. Its apartment units are often located in urban areas, close to the typical tenant’s office.
Rising home prices have been the story of the post-COVID landscape, with the FHFA Home Price Index up nearly 19% over the past year. In many of these urban areas, price appreciation has been even higher as many apartment dwellers have opted out of cities during the pandemic. It ended up working against Equity Residential in 2020 and 2021 because it “bought occupancy,” meaning it often offered incentives like a few months free rent or extra amenities. This reduced funds from operations during the pandemic and immediately after, but those submarket leases have largely disappeared.
Rents generally follow housing prices, which gives the company a track to increase rents in the future. While home price appreciation will likely normalize (teenage house inflation just isn’t sustainable), the imbalance between supply and demand is so stark that a decline in prices houses is unlikely.
The typical Equity Residential tenant is a high income earner who would probably like to buy a property, but high prices and mortgage rates make it difficult. In the meantime, they will likely wait for the market to end and continue renting.
The company’s first quarter of 2022 fell short of street expectations, and the stock fell with the market thereafter. The company has a dividend yield of 3.4%, which is an attractive yield in this market.