If you are looking to tap into a new source of funds for retirement, then real estate investment trusts (REITs) are a popular way to build a reliable passive income stream. REITs generate cash flow through rent or sales, and legally must pass on the majority of their profits to shareholders as dividends.
The difficult part is that like anything else in the stock market, not all companies are created equal. So here’ll we’ll analyze three of the best REITs to consider adding to your portfolio.
Public Storage (PSA)
Public Storage (NYSE:PSA) is one of my top picks, as it’s considered a leader in the self-storage market. The company has large physical positions in real estate throughout America, including 200 million square feet of space in 40 states.
To make things better, Public Storage has also been expanding its reach aggressively for the last few years, and this is shown in how quickly its total assets have grown. They have swelled 23% to over $7.4 billion in new investments.
When it comes to income, the stock is no laggard either. Its operating cash flow is around $2.4 billion and has total liquidity standing at $1 billion. Its payout ratio stands at 52%, thus giving it a 4% yield and a $3 quarterly dividend amount.
Prologis (NYSE:PLD) owns logistics centers all through the United States, Europe and parts of Asia. Its portfolio mainly consists of warehouses and other industrial complexes it then rents out to other, blue-chip companies such as Amazon (NASDAQ:AMZN) or the United Parcel Service (NYSE:UPS). Another angle it pursues for growth is the fact that it can continue to add more square feet of space to increase its income further.
What I like the most about Prologis is the fact that it seems very efficient and capable of growing a small investment of shareholder value into a much larger one. Its return on equity of around 6% is proof of this.
The news keeps getting better when one considers that it has increased its dividend consecutively for the past five years and has a sustainable payout ratio. Its yield stands at 2.93% and it has a quarterly dividend amount of 87 cents.
Blackstone Mortgage Trust (BXMT)
Finally, there’s Blackstone Mortgage Trust (NYSE:BXMT), which is a viable option if you are comfortable stepping your toes into the world of mortgage REITs. The good news is that this REIT goes hand in hand with Blackstone (NYSE:BX), which is one of the most respected commercial real estate companies in the world when it comes down to the number of assets on its books.
Since BXMT’s business focuses on loans, it’s inherently more risky than other REITs that have a physical baseline such as Prologis or Public Storage. This risk also means that it’s more cyclical in nature, particularly affected by macroeconomic forces such as rising interest rates.
Still, there are aspects of BXMT that make it an excellent addition to an investor’s portfolio for passive income. The company’s dividend yield is a whopping 13.97% and also pays out a quarterly dividend amount of 62 cents.
On the date of publication, Matthew Farley did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.