Modern life involves a lot of routine. Most of us need to go to the grocery store each week, and we tend to need to put gas in our cars rather frequently. We'll also routinely go out to eat (or pick up takeout) and buy something at a convenience store or pharmacy. These activities are so routine that we probably don't think much about them.
However, the places we routinely visit could be a goldmine of passive income. Many essential retailers we frequent rent their space, providing their landlords with rental income.
You don't need to be a landlord to get a piece of this passive real estate income. A much easier and lower-cost pathway to passive income is to invest in a real estate investment trust (REIT) focused on owning the types of properties you frequently visit.
Shopping for dividends
Agree Realty(NYSE: ADC) owns over 2,200 retail properties nationwide. Its top tenant sectors include grocery stores (9.6% of its rent), home improvement centers (9.2%), and tire and auto service locations (8%) net leased to retailers like Walmart, Kroger, and Lowe's.
Those leases supply the REIT with a very stable rental income because tenants cover operating costs like routine maintenance, building insurance, and real estate taxes. It also gets about 11% of its rent from ground leases, where it owns the land underneath retail properties.
The retail REIT pays less than 75% of its income to investors in dividends each month. Agree Realty's payout currently yields around 4%. At that rate, it can turn every $100 invested into its stock into more than $4 of annual dividend income.
Agree Realty uses the income it retains to help fund new investments in income-producing retail properties. In the first half of this year, it invested $302 million in 102 net lease properties and committed another $101 million to 25 development projects. These investments will increase its rental income and should enable the REIT to raise its dividend. It has grown its payout at a 5.7% annual rate over the last decade.
Fueling more income into your pocket
Getty Realty(NYSE: GTY) is a REIT focused on investing in convenience and retail real estate. It owns over 1,100 properties net leased to companies that operate convenience stores, car washes, auto service centers, drive-through quick-service restaurants (QSRs), and gas stations.
The REIT pays out less than 80% of its cash flow in dividends, and its payout currently yields more than 5.5%. Getty has grown its dividend at a 5.2% compound annual rate since 2019.
Getty Realty continues to grow its portfolio. In the first half of the year, it invested over $100 million in acquiring or developing auto service centers, car washes, and QSRs. It also committed to investing another $53 million in 25 additional properties. These new investments should grow its income, which should allow it to continue increasing its dividend.
An appetizing passive income stream
Four Corners Property Trust(NYSE: FCPT) focuses on investing in restaurants and retail properties. The REIT has over 1,150 properties net leased to over 150 brands. Notable brands include Olive Garden (35.4% of its rent), Longhorn Steakhouse (10%), and Chili's (7.4%). In addition to owning restaurant real estate, the REIT owns auto service properties (10%) and medical retail locations (8%).
The REIT pays out about 80% of its cash flow in dividends. Its payout currently yields nearly 5%, and it has routinely increased its dividend, including by 1.5% late last year.
Four Corners Property Trust also routinely acquires more income-producing properties. The REIT recently bought 19 Bloomin' Brands restaurant properties for $66.4 million, making it its third-largest tenant. It also buys a steady stream of one-off properties, with recent deals including additional restaurants, veterinary properties, clinics, and auto service locations. The REIT's steadily growing portfolio should increase its cash flow so it can continue raising its dividend.
Collect passive income from places you frequently visit
REITs enable anyone to collect passive income from all types of real estate, including places we frequently visit to buy food and fill up our cars. They typically pay out a large portion of that income to investors in dividends. Those payouts tend to rise yearly as the REITs buy more income-producing properties. Because of that, you could potentially collect a lifetime of income by investing in the properties you routinely visit to purchase the goods and services you need.
Should you invest $1,000 in Agree Realty right now?
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Matt DiLallo has positions in Lowe's Companies. The Motley Fool has positions in and recommends Walmart. The Motley Fool recommends Bloomin' Brands, Kroger, and Lowe's Companies. The Motley Fool has a disclosure policy.
