Will Rogers once said, “Buy land. They aren’t making any more of the stuff.”
Indeed, it’s true that owning rental property has traditionally been a good way to supplement retirement income. Rent is paid monthly and the various expenses related to owning property can be deducted from taxable liabilities.
Unfortunately, being a landlord sometimes isn’t all it’s cracked up to be.
Ongoing maintenance, emergency repairs, trouble finding quality tenants and other hassles can add up to serious expenses and headaches. Luckily, for those of us that don’t want to deal with such hassles, Congress created real estate investment trusts (REITs) over half a century ago as way for the average investor to own property assets.
Covering a wide swath of the real estate market — including shopping malls, apartments, housing loans, retirement communities and more — REITs offer wide diversification over a single rental residence. Plus, in exchange for operating under a different set of tax rules, REITs are required to distribute 90% of their earnings back to shareholders.
In doing so, REITs often have higher than normal dividend yields which make them perfect for income investors. Unfortunately, most trusts pay their distributions quarterly — negating one of the beauties of the landlord-tenant relationship: the monthly rent check.
Not to fret though. The real estate income investor is in luck, as there are a few firms that will put cash in your pocket every month of ownership. Take a look:
Realty Income (NYSE:O) — which bills itself as “The Monthly Dividend Company” — could be called the grandfather of this space. It has paid a steady monthly dividend since its founding in 1969. That’s made for 512 consecutive monthly payments totaling $2.38 billion in cash.
Even more importantly, Realty Income has been able to grow that dividend 142% since going public back 1994, including 62 consecutive quarterly increases.
The REIT is able to pay such juicy dividends due to the size of its property portfolio. Realty Income currently owns over 3,500 different commercial properties across 49 states, with the bulk of them being rented on long term net-lease agreements.
That produces some juicy cash flows since net-leased buildings require little to no management and only minimal oversight. The tenant is required to pay not just rent, but also some or all of the property expenses that normally would be paid by the property owner, such as taxes, insurance and maintenance.
Of course, Realty Income isn’t just resting on its laurels. The REIT continues to add to that hefty property portfolio and recently closed on the mega purchase of American Realty Capital Trust (NASDAQ:ARCT) back in the end of January. That deal added around 500 triple-net properties to O’s portfolio.
Realty Income currently yields over 4.7%.
Inland Real Estate
Owning 157 different properties, Inland Real Estate (NYSE:IRC) is one of the Midwest’s largest owners and operators of community, neighborhood, power and lifestyle shopping centers and single-tenant retail buildings. Approximately 60% of Inland’s square footage is located in the Chicago metropolitan area and northwest Indiana.
The company’s focus on community and neighborhood shopping plazas has served it well as over 70% of its tenants are national retail chains and the bulk of its properties include either a grocery store, major drugstore or a discount chain. That focus on “necessity” has helped weather the recession quite nicely. Inland had an occupancy rate of 94% at the end of 2012.
That high occupancy rate, coupled with strong traffic flows to stores within its property mix, have helped drive the company’s 5.7% yield.
Operating in an area that is set to benefit from one of the biggest demographic trends, LTC Properties (NYSE:LTC) could be another great choice for those investors looking for monthly dividends. The REIT owns and manages 207 different senior housing and long-term healthcare properties across the country, including skilled nursing and assisted living properties.
The “Above-75” population is forecast to double by 2030 and healthcare spending is estimated to grow by 5.8% annually. LTC is definitely poised to benefit from these major trends. Already, the fact that it operates in a traditionally defensive industry, along with company’s strong fundamentals, have led to shareholder benefits.
The REIT has managed to increase its monthly cash distributions by an average of 3.8% over the past five years. Perhaps more importantly, LTC expects its FFO to jump by 9.3% this year. That will lead to more dividend increases and cash to buy up additional healthcare-related properties.
LTC currently yields 4.4%.
As of this writing, Aaron Levitt did not own a position in any of the aforementioned securities.