Being a landlord is one of the oldest ways to earn an income stream. And these days, you don’t have to buy a house to get a piece of the action.
Check out real estate investment trusts, which are publicly traded companies that own income-producing real estate.
REITs collect rent from their properties and pass it along to shareholders in the form of dividends. That means investors don’t have to worry about screening tenants, fixing damages or chasing down late payments. Instead, they simply sit back and enjoy the dividend checks rolling in when they pick a winning REIT.
Of course, the COVID-19 pandemic did impact some commercial real estate. And not all REITs are the same. If you are a landlord for e-commerce giant Amazon, for instance, you should have no problem collecting a steady stream of rental income.
With that in mind, let’s take a look at two REITs paying oversized dividends to investors — one could be worth pouncing on with some of your extra cash.
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Amazon’s landlord
The first one is STAG Industrial (STAG), a REIT that owns and operates single-tenant industrial properties throughout the U.S. Its biggest tenant is Amazon.
The company’s portfolio consists of 544 buildings totaling approximately 109 million rentable square feet across 40 states.
Note that 459 of the 544 properties are warehouses, which happen to be an essential part of e-commerce.
Moreover, a tenant survey in 2020 revealed that around 40% of the REIT’s portfolio handles e-commerce activity.
To see how solid STAG Industrial is, take a look at its dividend history.
Since the company went public in 2011, it has paid a higher dividend every single year.
While most dividend-paying companies follow a quarterly distribution schedule, STAG Industrial pays shareholders every month. The monthly dividend rate stands at 12.2 cents per share, which translates to an annual yield of 4.4%.
STAG Industrial shares are down 7% over the past 12 months.
On Mar. 15, Wells Fargo reiterated an ‘overweight’ rating on STAG Industrial. The firm’s price target of $46 implies 38% upside from STAG’s current levels.
Walmart’s landlord
When it comes to paying monthly dividends, one company stands out above all — Realty Income (O).
Realty Income has been paying uninterrupted monthly dividends since its founding in 1969. That’s 623 consecutive monthly dividends paid.
Better yet, since the company went public in 1994, it has announced 115 dividend increases.
Realty Income has a diverse portfolio of over 11,000 commercial properties located in all 50 states, Puerto Rico, the UK and Spain. It leases them to around 1,040 different tenants operating across 60 industries.
This means even if one tenant or industry enters a downturn, the impact on company-level financials will likely be limited.
For instance, while Realty Income rents some properties to AMC Theaters — whose business was hurt by COVID-19 — it also has Walgreens, FedEx and Walmart as some of its top tenants. And these businesses turned out to be largely pandemic-proof.
Earlier this month, the REIT announced a monthly cash dividend to 24.7 cents per share, giving the stock an annual dividend yield of 4.3%.
Investors who hold onto Realty Income shares for the long term might earn more than just dividends. Morgan Stanley has an ‘overweight’ rating on the company with a price target of $77.
Considering that Realty Income trades at roughly $69 today, the price target implies a potential upside of 12%.
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This article provides information only and should not be construed as advice. It is provided without warranty of any kind.
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