Building up a passive income stream from your investments is a dream shared by many, and it's no surprise why. Seeing dividend payments trickle into your account is tremendously satisfying, especially since you don't need to work for it -- aside from picking the right businesses to invest in, that is.
If you want to make income that's truly passive, you'll need to invest in companies that are eminently stable and which are unlikely to be under serious financial pressure that'd require slashing the dividend to keep the lights on. In this vein, there are two solid passive income stocks that investors should know about. They probably won't beat the market anytime soon, but with a bit of diligence, it won't be too hard to build up enough shares to yield $1,000 in annual payments that you can count on for the long term.
1. Alexandria Real Estate
Alexandria Real Estate Equities (NYSE: ARE) is a real estate investment trust (REIT) that specializes in developing and renting out biomedical laboratory and office spaces to the industry's leading businesses, and it's also a passive income machine for investors who have a bit of patience.
It derives rental revenue from its roster of more than 850 tenants, many of which are household names like Moderna and Pfizer, and even a few non-biopharma companies like Uber Technologies. That means its largest renters are unlikely to default, and, when paired with annual rent escalations, it also means that Alexandria's income will keep increasing even if it doesn't purchase and build out any new properties.
In the first half of 2022 alone, thanks to aggressive leasing volumes and rising rent prices, it brought in more than $1.2 billion, a 27.2% increase over the first half of last year. Alexandria's stock currently has a forward dividend yield of just over 3%, which is on the low side for a REIT. But its dividend payment grew by 123% over the past 10 years, and management is planning on continuing to hike it consistently to take advantage of its strong cash flows.
Either way, you'll need to invest a hearty chunk of change to get to $1,000 in passive income per year -- slightly more than $32,573, to be exact. Most investors won't have that much money lying around, so it makes sense to set up a recurring purchase of the company's shares to accumulate a position of sufficient size over the course of a few years. At its current price and yield, if you buy $500 worth of shares every month, it'll only take around five years and a few months to reach a grand in totally passive income annually.
While that won't lead you to getting rich quickly, it will provide some cash flow from your portfolio, not to mention ownership of a leading life sciences REIT which is likely to retain its value over time regardless of economic conditions.
2. Boston Properties
Like Alexandria, Boston Properties (NYSE: BXP) leases both laboratory floor space and office space -- though lab space is a minor portion of its portfolio. And, despite its name, it actually owns properties on both coasts of the U.S., including in Boston specifically. Its major tenants are power players in biopharma, like Biogen, as well as multinational software companies like Alphabet and Microsoft.
From the first quarter of 2012 through Q1 2022, its compound annual growth rate (CAGR) in rental income from its tenants in technology, life sciences, healthcare, and media was 11%. In the second quarter of this year, that growth translated to making $773.9 million in revenue. And with more than 16 million square feet of floor space in development, it'll be able to keep growing for the foreseeable future.
Boston Properties' forward dividend yield of 4.9% means that you'll need to invest around $20,400 to reach $1,000 in annual passive income, which is a bit more approachable than with Alexandria. With a monthly investment of $500, it'd only take you roughly three years to accumulate enough shares.
But it's important to remember that because Boston Properties' portfolio is mostly concentrated in office spaces (for which there are many alternative providers) rather than rarer and more valuable laboratory spaces, it isn't quite as resilient in the face of economic downturns. So its passive income potential is a touch riskier than Alexandria's.
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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Alex Carchidi has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alexandria Real Estate Equities, Alphabet (A shares), Alphabet (C shares), and Microsoft. The Motley Fool recommends Biogen, Moderna Inc., and Uber Technologies. 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.
