Generating durable passive income can give you a lot of financial freedom. You'll have income you can rely on year after year.
Dividend-paying stocks can be a great way to make reliable passive income. There are many great options, including W. P. Carey (NYSE: WPC), Rexford Industrial Realty(NYSE: REXR), and Invitation Homes (NYSE: INVH). The trio of real estate investment trusts (REITs) should be able to deliver decades of passive income for their investors.
A very stable business
W. P. Carey is a diversified REIT. The company focuses on owning operationally critical warehouse, industrial, and retail properties across the U.S. and Europe, net leased to high-quality tenants. The REIT also has a portfolio of operated self-storage properties. Net lease real estate generates very stable rental income because the tenant covers routine maintenance, building insurance, and real estate taxes.
The REIT's portfolio currently has a weighted average lease term of 12 years remaining. More than half of its leases contain annual rental rate escalation clauses tied to inflation, while most of the rest escalate rents at a fixed annual rate. Because of that, the company's current portfolio should produce steadily rising income over the next decade.
W.P. Carey pays 70%-75% of its stable income in dividends each year. It retains the rest to help finance new investments. Those investments grow its cash flow, which, along with rent growth, supports a rising dividend that currently yields nearly 6%.
Focused on the best market
Rexford Industrial Realty has a very focused investment strategy. The industrial REIT only invests in the Southern California industrial property market. That's because it consistently has the highest demand with the lowest supplies among the country's major industrial markets. That keeps occupancy levels high while driving above-average rent growth.
Over the last five years, Rexford has grown its funds from operations at a 16% compound annual rate, blowing past its peer-group average of 9%. The company has also delivered much faster dividend growth of 18% annually during that period, compared to 10% for its peers. Since coming public a decade ago, it has increased its payout (which yields more than 3.5%) every single year.
Rexford already has a lot of built-in growth. It expects rental increases (embedded in its long-term leases and capturing higher market rents as legacy leases expire), repositioning and redevelopment projects, and recently secured acquisitions to boost its net operating income by 35% through the second quarter of 2027. That doesn't factor in the impact of future accretive acquisitions.
With a strong balance sheet and focused investment strategy, Rexford can continue growing its portfolio, cash flow, and dividend at healthy rates for years to come.
Investing in growing housing markets
Invitation Homes is a residential REIT focused on single-family rental properties. The company owns or manages over 100,000 homes across 16 major U.S. markets. It focuses on metro areas where jobs and the population are growing at above-average rates. That keeps occupancy levels high while driving healthy rent growth.
The REIT enhances its growth rate by investing to expand its portfolio. It will buy homes in one-off transactions, purchase a portfolio from an investor, and buy properties directly from builders. It currently has a large build-to-rent pipeline with builders (nearly 2,700 homes under contract), giving it visibility into its future growth. Invitation Homes also recently launched a third-party management platform, which should open the door to future acquisition opportunities.
Invitation Homes' growing rental income and steadily expanding portfolio is increasing its FFO per share. That's enabling the REIT to steadily raise its dividend, which it has done every year since coming public in 2017. With housing demand steady and growing, Invitation Homes should be able to continue growing its business and nearly 3.5%-yielding dividend in the decades ahead.
Durable passive income producers
W. P. Carey, Rexford Industrial Realty, and Invitation Homes focus on investing in high-quality real estate. That enables them to generate steadily rising rental income to support their above-average dividends. Those features make them great dividend stocks to buy for those seeking decades of passive income.
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Matt DiLallo has positions in Invitation Homes, Rexford Industrial Realty, and W.P. Carey. The Motley Fool has positions in and recommends Invitation Homes and Rexford Industrial Realty. The Motley Fool has a disclosure policy.
