The odds are pretty good that you walk or drive past a retail store each day as you go about your routine. With over 1 million brick-and-mortar retail stores across the U.S., according to Statista, they're hard to miss. A significant percentage of these retailers lease their space from the property's owner.
Those leases provide passive rental income to the real estate investors who own those properties. You could join them in earning passive income from real estate by investing in a real estate investment trust (REIT) focused on owning retail properties. Here's a look at three top retail REITs to buy for passive income.
A very agreeable income stream
Agree Realty(NYSE: ADC)currently owns more than 2,200 retail locations. It signs long-term net leases with high-quality retail tenants at most of its locations. That lease structure requires the tenant to cover all operating costs, including routine maintenance, building insurance, and real estate taxes. Meanwhile, 11.3% of its rent comes from ground leases, where it owns the land but not the building. Those leases provide very stable rental income since failure to pay rent would cost the retailer its building. Its top tenants are Walmart, making up 5.8% of its annualized base rent; Tractor Supply, 4.9%; and Dollar General, 4.7%, while its top sectors are grocery stores, at 9.6%; home improvement centers, 9.2%; and tire and auto service locations, 8%.
The REIT pays out less than 75% of its funds from operations (FFO) in dividends to investors each month. That payout currently yields more than 4%. At that rate, investors would collect over $4 of passive income each year for every $100 they invest in the REIT.
Agree Realty uses its financial flexibility to invest in more income-generating retail properties. It expects to invest about $700 million this year. Its recent investments have helped grow its FFO by about 6% over the past year, supporting a 2.9% increase in its dividend. With most of its tenants expanding their retail footprint, Agree Realty should have no shortage of future investment opportunities.
A delicious dividend
Four Corners Property Trust(NYSE: FCPT) is a REIT focused on restaurants and other retail properties. It currently owns over 1,100 locations leased to 154 brands. Darden Restaurants is its top tenant, with 35% of its rent coming from Olive Garden, 10% from Longhorn, and 4% from other Darden concepts. In addition to leasing to many other restaurant brands, the REIT also owns auto service properties, accounting for 10%; medical retail locations, 8%; and other retail spaces at 3%.
The company net or ground leases its properties. Those leases supply it with predictable income to support its dividend. Its quarterly dividend yields nearly 5%.
Four Corners routinely acquires additional retail properties. For example, it recently bought 19 Bloomin' Brands restaurant properties, including Outback Steakhouse and Carrabba's Italian Grill, for $66.4 million. The deal will further diversify its portfolio, as Bloomin' Brands will become its third largest tenant at 3.3% of its rent, while growing its rental income. That should enable the REIT to continue increasing its dividend.
Filling your portfolio with passive income
Getty Realty(NYSE: GTY) is a REIT focused on convenience, automotive, and other properties. The REIT owns more than 1,000 properties, including convenience stores with and without gas stations, express tunnel car washes, auto service centers, and drive-through quick-service restaurants. It leases those properties back to the operators under long-term net lease agreements.
The REIT's leases provide it with very stable rental income. It pays out the bulk of its income in dividends each quarter. That payout currently yields nearly 6%
Getty Realty steadily invests in new properties. For example, it bought 18 properties in the second quarter, including nine auto service centers, seven car washes, one restaurant, and one convenience store, for $56.2 million. It also invested another $5.5 million into five development projects. Meanwhile, it committed to invest $53 million to acquire or develop 24 more properties. These new investments will grow its portfolio, rental income, and dividend.
Don't pass on these passive income investments
Most of us probably don't think about the retail properties we pass by each day. That could cause you to miss out on the fact that many of those retailers are paying rent to REITs like Agree Realty, Four Corners Property Trust, and Getty Realty. That enables their investors to collect passive dividend income. You could join them in cashing in on this opportunity by investing in one of these retail REITs.
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Matt DiLallo has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Walmart. The Motley Fool recommends Bloomin' Brands and Tractor Supply. The Motley Fool has a disclosure policy.
