Income

5 passive income stocks that can make you richer

Investment goals tend to change over time. Although many focus on building wealth, preserve it is an underrated part of travel. Dividend stocks that pay you to own stocks are a great wealth preservation tool and offer benefits such as the ability to cover your expenses or reinvest your dividends to increase your dividend income.

But instead of looking at traditional stocks, consider real estate investment trusts (REITs). These are real estate companies designed to generate income for shareholders. Here are five great examples to start your search.

1. Real estate income

Retail REITs Real estate income (O 0.79%) acquires and leases single-tenant commercial properties in the United States and Europe. It is one of the largest REITs in its industry, with approximately 11,400 commercial properties that generate $3.1 billion in annualized rents. Realty Income does net leases, where the tenant is responsible for taxes, insurance and maintenance.

O FFO data per share (TTM) by YCharts

The company is a Dividend Aristocrat, an S&P 500 company that has increased its dividend for at least 25 consecutive years. Over the past year, the company has generated $3.70 per share in cash earnings, known as funds from operations (FFO), easily funding its $2.84 per share in dividends. Unlike most companies, it pays a monthly dividend.

2. American Tower Society

Many lands and structures that support cell phone towers and other communications equipment do not belong to carriers, but to American Tower Corp. (AMT 0.58%). The company has 222,000 communication sites worldwide. These properties are mission critical to telecommunications and broadcasting companies, making them reliable tenants for American Tower.

Chart AMT FFO per share (TTM)

AMT FFO per share (TTM) data by YCharts

American Tower became a REIT in 2012 and has grown tremendously over the past decade. The dividend yield won’t blow you away at 2.1%, but it has outperformed the S&P 500 over the past decade and has a dividend payout ratio of 41%. Greater dividend growth is almost a given over the next few years.

3. Innovative industrial properties

Cannabis has become a rapidly growing industry as legalization spreads across America. However, its federal legal status prevents operators from accessing traditional financing. Innovative industrial properties (IIPR 2.40%) stepped in by acquiring properties from operators and renting them out, giving them much-needed cash to run their businesses.

IIPR FFO Chart per Share (TTM)

IIPR FFO per share (TTM) data by YCharts

Innovative industrial properties haven’t been around as long as other publicly traded REITs; it went public in 2016 as the first cannabis REIT to do so. The stock offers a high dividend yield of 7.5% currently backed by almost $7 of FFO per share, or a payout ratio of 82%. A recession could squeeze the company’s tenants, but the company collected 99% of rents in the first half of 2022, so that hasn’t been an issue yet.

4. Federal Real Estate Investment Trust

Retail REITs Federal Real Estate Investment Trust (FRT 1.82%) leases large commercial spaces such as outdoor commercial areas and mixed-use properties in the suburbs of major metropolitan markets in the United States. These outer rings, as management calls them, are high-income regions with lots of customer traffic, making them more resilient in the face of an economic downturn.

FRT FFO Chart per Share (TTM)

FRT FFO Data per Share (TTM) by YCharts

The strategy worked – the company is a dividend king and recently announced its 55th consecutive dividend increase. Investors can confidently hold Federal Realty Investment Trust after pandemic stress tested the business. You can see above how the pandemic hurt earnings, but the company still managed to pay and increase its dividend.

5. Domestic Commercial Properties

Retail REITs Domestic commercial properties (NNN 1.50%) leases sole-tenant retail properties, focusing on e-commerce-resistant quick-service businesses like fast-food chains, car washes and convenience stores. The company owns more than 3,200 properties in 48 states. Like Realty Income, the company uses a net rental model, putting the daily expenses of occupying a property on the tenant.

NNN FFO Chart per Share (TTM)

NNN FFO Per Share (TTM) Data by YCharts

While National Retail Properties isn’t technically a dividend aristocrat, it meets the same criteria: The company has raised its dividend for 33 consecutive years. Management strategically maintains a dividend payout ratio of 66% to give the company a margin of safety. It worked – the company endured the pandemic, one of the toughest environments for a real estate company in history. Investors can confidently buy stocks as part of a diversified portfolio of dividend-paying stocks.

Justin Pope has no position in any of the stocks mentioned. The Motley Fool fills positions and recommends American Tower and Innovative Industrial Properties. The Motley Fool has a disclosure policy.