REITs have historically been great passive income producers.
Generating passive income can help put you on the pathway to financial independence. That income can steadily offset your expenses so you don’t have to work as much in the future. It can also help give you peace of mind that you’ll be OK financially if you ever lose your job.
There are a multitude of ways to start making some passive income. One of the most durable sources tends to come from real estate investment trusts (REITs). The top REITs pay attractive and steadily rising dividends. Here’s a look at three great REITs to buy now for decades of passive income.
127 increases and counting
Realty Income (O 0.48%) is a passive income-generating machine. The diversified REIT has made 651 consecutive monthly dividend payments throughout its history. It has increased its dividend 127 times since coming public in 1994 (and for 30 consecutive years), including for the last 108 straight quarters.
The REIT owns retail, industrial, gaming, and other properties net leased to high-quality tenants. That lease structure requires tenants to cover all of a property’s operating costs, including routine maintenance, building insurance, and real estate taxes. They also typically feature annual rental-rate escalation clauses. These elements enable Realty Income to collect a steadily rising income stream to pay dividends.
Realty Income pays out a conservative percentage of its cash flow in dividends (less than 75% of its adjusted funds from operations, or FFO). It retains the rest to help fund new income-generating real estate investments. The REIT also has an elite balance sheet, giving it additional financial flexibility to continue growing its portfolio. It conservatively expects to grow its adjusted FFO per share by 4% to 5% annually, which should continue to support a steadily rising dividend.
More than three decades of stability and growth
EastGroup Properties (EGP 1.43%) recently declared its 179th consecutive quarterly dividend. The industrial REIT has increased or maintained its dividend for 32 straight years. It has raised its payout in 29 of those years, including the last 13 in a row.
The REIT benefits from its focus on owning industrial properties (primarily distribution facilities) in the Sun Belt region. That’s allowing it to capitalize on the region’s above-average economic and population growth, which is driving rising demand for warehouse space. Those factors keep occupancy levels high while driving healthy rent growth.
EastGroup Properties also invests in high-return development projects and accretive acquisitions. It has built half its portfolio from the ground up, focusing on building in park settings to increase returns and reduce risk. The REIT will also routinely acquire properties, including operating, value-add, and redevelopment opportunities. The company’s combination of rent growth and portfolio expansion should enable it to continue paying a steady and rising dividend.
Three decades of dividend growth
Essex Property Trust (ESS 1.24%) is a residential REIT focused on owning multifamily properties along the West Coast. The company has a stellar record of paying dividends. It has increased its payment for 30 straight years, growing it at an impressive 487% during that period.
The apartment landlord benefits from healthy demand for rental housing in its markets. It focuses on supply-constrained metro areas, which help keep occupancy high while driving above-average rent growth.
Essex Property Trust also routinely invests capital to expand its apartment portfolio. It will acquire recently developed properties in the lease-up stage and fully stabilized operating properties. It also builds new apartment communities and provides financing to developers. Further, the REIT invests money to redevelop existing properties, making them more appealing to renters so that it can increase rents. These growth drivers should enable the REIT to continue raising its dividend in the future.
Decades of durable income
Realty Income, EastGroup Properties, and Essex Property Trust have paid dependable dividends over the last three decades. And they’re well positioned to continue paying durable dividends, given their property focus and strong financial profiles. Because of that, they’re great REITs to buy right now to potentially collect dividends for decades to come.
Matt DiLallo has positions in EastGroup Properties and Realty Income. The Motley Fool has positions in and recommends EastGroup Properties and Realty Income. The Motley Fool has a disclosure policy.