Real estate investing has long been a proven path to prosperity, but it also can involve a lot of upfront investment and then time and/or money spent on managing those assets.
Then there's passive income, the cash flow you receive for your investments that requires nothing more from you than owning the assets. Real estate investment trusts (REITs) are a particularly easy way to reap those benefits.
These pools of income-producing properties must pass through to shareholders at least 90% of their taxable income, and there are about 220 publicly traded REITs that also add the benefits of liquidity and transparency that come with holding exchange-traded equities.
Here are two that I own and regularly add to when I can. Each is in a different sector, adding some diversification to all those other attributes mentioned above.
1. Realty Income
Realty Income (NYSE: O) is a poster child for passive income. This giant among retail REITs brands itself as "The Monthly Dividend Company" and has done just that for 625 straight months and counting. And it's produced a compound average annual total return of 15.1% since its 1994 listing on the NYSE.
Realty Income makes its living off of the more than 11,400 properties it owns in every U.S. state, Puerto Rico, Spain, and the United Kingdom. The portfolio is more than 98% occupied and growing fast, too. The company plans to spend $6 billion on acquisitions in 2022 alone, and with a client list full of recession-resistant retailers, that flow of passive income will probably just keep on keeping on.
Currently, Realty Income stock sells for about $74 a share and pays a monthly dividend of $0.2475 per share, good for a yield of about 4%.
2. Life Storage
Life Storage (NYSE: LSI) is a self-storage leader that went public in 1995 as Sovran Self Storage; it operated under the brand name Uncle Bob's Self Storage until it changed to its current name after acquiring LifeStorage LP in 2016.
This industrial REIT has grown with the industry and now operates more than 1,100 facilities covering 67 million square feet in 36 states. The business includes both company-owned stores and a thriving third-party management platform.
Monthly leases and steady demand should allow Life Storage to raise rents quickly while growing revenue, as will growth in the portfolio itself, including the 13 stores it bought and the 17 it added to its management platform in the second quarter.
As for dividend payouts, Life Storage has bumped up its dividend for three years in a row, including recently by 8% to $1.08 per share. Its stock now yields about 3.3% at a share price around $134.
O Total Return Level data by YCharts
As the chart above shows, Realty Income and Life Storage have easily outpaced the S&P 500 in total return for quite some time, and there's good reason to believe this outperformance will continue. Total return, of course, combines share price growth and dividend payouts, which helps make this showing by these two real estate investment options doubly impressive.
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Marc Rapport has positions in Life Storage Inc and Realty Income. The Motley Fool recommends Life Storage Inc. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
