Earning passive income is the pathway to financial freedom. As you generate more passive income, you'll become less reliant on your job to support your lifestyle. That could give you the freedom to work fewer hours or change to a more rewarding career.
Investing in dividend stocks is an easy way to start collecting passive income. Realty Income (O -0.17%), EPR Properties (EPR 1.25%), and Gladstone Land (LAND 1.47%) are three great options because they pay monthly dividends instead of the typical quarterly schedule of most dividend payers. That makes them great options for those seeking recurring passive income to help offset regular expenses.
Built to produce passive income
Realty Income bills itself as "The Monthly Dividend Company." The real estate investment trust (REIT) has delivered on that claim over the years. It has paid 644 monthly dividends throughout its 55-year operating history. It has increased its payment 123 times since coming public in 1994, including for the last 105 straight quarters.
The REIT owns an increasingly diversified portfolio of properties that produce durable rental income. It focuses on leasing properties to tenants resilient to economic downturns and the pressures of e-commerce, like grocery stores, warehouses, and casinos. It utilizes net leases that make the tenant responsible for the variable and inflating costs of building insurance, maintenance, and real estate taxes. These features enable it to generate very stable rental income.
Realty Income pays out about three-quarters of its steady cash flow in dividends. It retains the rest to help fund new income-generating investments. Meanwhile, its elite balance sheet gives it more financial flexibility to make new investments. Realty Income estimates that it can grow its adjusted funds from operations (FFO) by 4% to 5% per year, which should allow it to steadily increase its dividend. That payout currently yields around 5.9%. At that rate, every $1,000 invested into its stock would produce about $59 of annual income (roughly $4.92 per month) that should steadily rise in the future.
A blockbuster income stream
EPR Properties is a REIT that owns experiential real estate like movie theaters, casino resorts, experiential lodging, attractions, and fitness and wellness centers. It leases these properties back to the operator. Those net leases supply it with fairly steady cash flow to pay its monthly dividend, which yields 8.3%. At that rate, it can turn $1,000 into $89 of annual dividend income (about $7.42 monthly).
The REIT recently increased its dividend payment by 3.6%. It should continue rising in the future as EPR expands its portfolio of experiential real estate. Last year, the company invested $269.4 million into new properties, including a mortgage note related to three premier resort day spas and acquiring another climbing gym. These new investments will help grow its FFO per share by about 3.2% this year.
EPR Properties has lots of financial flexibility to continue expanding its portfolio, cash flow, and dividend. The REIT expects to invest about $200 million-$300 million into new experiential real estate this year, which includes funding $240 million of committed development and redevelopment projects over the next two years. It can fund this growth with excess cash after paying dividends, its cash-rich balance sheet, and selling non-core properties.
Harvesting income
Gladstone Land is a farmland REIT. It owns 168 farms that grow permanent crops (e.g., almonds, apples, olives, and pistachios) and fresh produce (e.g., berries and vegetables planted and harvested annually). It leases these farms to tenant farmers under long-term, net leases that pay a fixed cash rental rate that escalates annually or a fixed rate plus a percentage of the farm's gross revenues. Those leases supply it with steadily rising rental income.
The farmland REIT uses that money to pay a steadily growing monthly dividend that currently yields 4.3%. It could generate $43 of annual income ($3.50 per month) for every $1,000 invested at that rate. Gladstone has paid 132 straight monthly dividends since coming public. It has increased its payout 33 times over the last 36 quarters. It aims to frequently increase its payout at a rate that matches or exceeds inflation over the long term.
Gladstone Land will routinely buy farms to increase its income and the ability to grow the dividend. It didn't buy any farms last year because of high interest rates and farm prices, opting instead to acquire water rights for future use at its farms. However, it has a strong balance sheet, giving it the capacity to buy farms when market conditions improve and the right opportunities arise.
Great ways to start earning recurring passive income
Realty Income, EPR Properties, and Gladstone Land pay monthly dividends that should continue rising in the future. That makes them great options for those seeking to earn recurring passive income to help cover their monthly expenses. Investing a little bit of money into these REITs each month could steadily grow into a meaningful monthly income stream that could help put you on the pathway to financial freedom.
Matt DiLallo has positions in EPR Properties, Gladstone Land, and Realty Income. The Motley Fool has positions in and recommends Gladstone Land and Realty Income. The Motley Fool recommends EPR Properties. The Motley Fool has a disclosure policy.
