Earn up to 11.1% a Year by Being a Passive Real Estate Investor
Looking to Earn a Passive Income? Read This
Owning real estate is one of the most well-known ways to earn passive income. But if you’ve been a landlord before, you’d know that this income is not as passive as it seems. First, you need to find tenants, which can take some time. And after the tenants move in, chores like fixing leaky faucets and chasing late payments are never fun experiences for a landlord.
I bet that, after dealing with deadbeat tenants, many landlords have thought, “I wish there was an easier way to make money from real estate.”
As it turns out, there is.
You see, there are plenty of real estate investment trusts (REITs) that trade on the stock market. A REIT is essentially a giant landlord that owns income-producing real estate. So if an investor buys shares of a REIT, they become part-owner of that REIT’s real estate portfolio.
The big question, of course, is whether an investor can earn a passive income stream from a REIT.
The answer is yes, because REITs are pass-through entities. They are required by law to distribute at least 90% of their profits to shareholders through dividends. In exchange for that mandatory distribution requirement, REITs pay little to no income tax at the corporate level.
And because a REIT investor doesn’t have to deal directly with the tenants, they can simply sit back, relax, and enjoy the dividend checks rolling in.
Better yet, REITs also offer the benefit of liquidity. If the owner of a house wants to sell, it might take weeks or even months before the house is sold and the owner gets paid. With a REIT that trades on a stock exchange, investors can buy and sell its shares anytime throughout the trading day.
Now I want to show you three REITs that provide generous income streams to their shareholders.
List of Three High-Yield REITs
|Company Name||Stock Ticker||Dividend Yield|
|Realty Income Corp||NYSE:O||3.6%|
|Omega Healthcare Investors Inc||NYSE:OHI||6.5%|
|Global Net Lease Inc||NYSE:GNL||11.1%|
Realty Income Corp
One of the reasons why investors like to own income properties is that, under most lease contracts, tenants have to pay rent every month. And since most of our bills also have to be paid every month, a monthly rental income stream comes in very handy.
And that’s why I put Realty Income Corp (NYSE:O) at the top of this list. While most dividend-paying stocks follow a quarterly distribution schedule, Realty Income stock pays investors every month.
In fact, the company has been doing that for decades. Since Realty Income’s founding in 1969, it has made 591 consecutive monthly dividend payments.
Those payments are backed by a rock-solid business. At the end of the third quarter of 2019, the company’s portfolio consisted of 5,964 freestanding properties in the U.S., Puerto Rico, and the U.K. They were leased to 274 commercial tenants from 49 different industries. (Source: “Realty Income Announces Operating Results For Third Quarter And First Nine Months Of 2019,” Realty Income Corp, November 4, 2019.)
Realty Income’s portfolio boasts a strong occupancy rate of 98.3% and a weighted average remaining lease term of 9.3 years. This should allow the company to generate a predictable stream of cash flow, which can in turn be returned to shareholders through monthly dividend payments.
Better yet, the payout has been going up. Since Realty Income completed its initial public offering (IPO) in 1994, it has delivered 103 dividend increases, with the last 88 of them being quarterly payout increases. (Source: “Dividend Payment Information,” Realty Income Corp, last accessed November 13, 2019.)
For investors who want to earn a passive income from stocks, few things are better than monthly dividend checks that go up every three months.
If you are wondering whether this REIT can afford all those dividend hikes, don’t worry. Realty Income Corp’s latest earnings report suggested that the company generated adjusted funds from operations of $0.83 per share in the third quarter of 2019. For the quarter, it paid three monthly dividends totaling $0.68 per share.
Therefore, despite delivering frequent dividend hikes, the REIT still managed to outearn its payout.
At its current price, Realty Income stock offers investors an annual dividend yield of 3.6%
Omega Healthcare Investors Inc
The second stock on this list is Omega Healthcare Investors Inc (NYSE:OHI), a healthcare REIT headquartered in Hunt Valley, Maryland. The company invests in the long-term care industry, primarily in skilled nursing and assisted living facilities.
As of September 30, Omega’s portfolio consisted of 910 facilities located in 40 U.S. states and in the U.K., with 73 different operators. (Source: “Map of Our Locations,” Omega Healthcare Investors Inc, last accessed November 13, 2019.)
In today’s market, Omega Healthcare Investors stands out due to the sheer size of its payout. In October, the board of directors approved a $0.01 increase to the company’s quarterly dividend rate to $0.67 per share. At the current share price, that translates to a generous annual yield of 6.5%. (Source: “Dividends,” Omega Healthcare Investors Inc, last accessed November 13, 2019.)
Omega Healthcare Investors had enough room to support this dividend increase. According to the company’s latest earnings report, it generated adjusted funds from operations of $0.76 per share in the third quarter of 2019. (Source: “Omega Announces Third Quarter 2019 Financial Results,” Omega Healthcare Investors Inc, November 5, 2019.)
The amount easily covered OHI stock’s cash dividend of $0.66 per share paid in the quarter.
One thing that could be viewed as a catalyst for Omega Healthcare Investors stock is population aging. As more and more baby boomers enter their golden years, the demand for long-term care could substantially increase. With a portfolio of skilled nursing and assisted living facilities, Omega Healthcare Investors Inc is well positioned to capitalize on this trend.
Global Net Lease Inc
If you think Omega Healthcare Investors’ yield is still not high enough, check out Global Net Lease Inc (NYSE:GNL). With a quarterly dividend rate of $0.53 per share, GNL stock provides a jaw-dropping yield of 11.1%.
As the name suggests, Global Net Lease has a worldwide real estate portfolio. While the U.S. is the company’s biggest exposure, representing 58% of its rental income, GNL also owns properties in the U.K. (18%), Germany (7%), The Netherlands (6%), Finland (5%), France (4%), and Luxembourg (2%). (Source: “Second Quarter Investor Presentation,” Global Net Lease Inc, last accessed November 13, 2019.)
The company’s portfolio in the second quarter consisted of 288 properties totaling 28.3 million square feet. Those properties were leased to 119 tenants in 48 different industries. At the end of June 2019, GNL’s portfolio was 99.6% leased, with a weighted average remaining lease term of eight years.
The best part is, 92.2% of the REIT’s lease agreements came with contractual rent increases. So, as time goes by, Global Net Lease Inc has a chance to earn a higher rental income from its portfolio.