4 high quality REITs that will boost your passive income (Featuring: Mark Roussin)
4 high quality REITs that will boost your passive income (Featuring: Mark Roussin)
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A Background on our Guest Writer
This week’s guest post is brought to you by Mark Roussin, CPA, Founder of Roussin Financial. Mark is a wealth coach who has amassed almost 100,000 followers on Twitter. He specializes in Dividend Investing with a strong focus on Real Estate Investment Trusts (REITs).
In today’s post, Mark will be taking you through what a REIT is, how they work and giving you some high-quality examples of REITs he’s buying in today’s market.
If you want to boost your passive income, keep reading.
Without further ado…
Here’s Mark Roussin on REITs.
If you follow me on Twitter or read my weekly newsletter (The Dividend Investor’s Edge) on substack, then you know I love REITs.
REITs or Real Estate Investment Trusts have always held a special place in my portfolio. I have set out to always maintain a 15-20% exposure rate to REITs.
In today’s post, I want to tell you a little more about REITs and why I tend to focus on them so much.
To begin, let’s start with what a REIT is.
A REIT is a company that owns, operates, or finances income producing real estate.
REITs are NOT taxed at the corporate level as long as they follow a set of rules, which are as follows:
At least 75% of their total assets should be real estate-related assets
At least 75% of gross income needs to be derived from real estate-related activities (rents, interest on a mortgage, etc.)
Pay at least 90% of their taxable income to investors in the form of dividends
Be an entity taxable as a corporation (even though they are not taxed)
Be managed by a board of directors
Have a minimum of 100 shareholders
Have no more than 50% of its shares owned by 5 investors or less
REITs are a great way for investors to gain real estate exposure with a hands-off approach. You do not have to worry about the 2 AM phone calls about a broken water heater or a leaking sink. Plus, you have quick access to your capital at a moment's notice, since REITs trade like stocks on an exchange.
Not only do REITs provide real estate exposure, but they also have been a top-performing asset class over the past few decades. For years, REITs fell under the Financials sector, but have since been broken out into their own sector under Real Estate within the S&P 500.
After all, REITs are just another type of stock, so you can invest in individual REITs or you can invest in REIT ETFs. Today, I will share a few of my favorites within each category.
Let’s begin with REIT ETFs. Two of the most common REIT ETFs are:
As you will see, both ETFs share similar top 10 holdings. The other great thing is that they are both low-cost ETFs.
Now for a couple of individual REITs for you to take a closer look at.
You cannot talk about REITs and fail to mention The Monthly Dividend Company, which is Realty Income (O). Realty Income is the gold standard when it comes to REITs. They operate as a net lease REIT in the retail sector. What this means is that many of the typical landlord costs are passed onto the tenants. These costs include Property Taxes, Insurance, Maintenance, etc.
Realty Income has a great tenant base that they work with, with many of them being investment-grade tenants, which adds to the safety of the REIT. They pay a monthly dividend and have been increasing their dividend for 25+ consecutive years, making them a Dividend Aristocrat.
Another solid REIT to consider, and it is one I have added to recently is American Tower (AMT).
In today’s day in age, telecommunication companies like AT&T, Verizon, and T-Mobile are battling it out hard to gain customers. Those battles eat into the companies margins. Instead of choosing one of them and hoping you hit the jackpot, why not invest in the infrastructure behind all of them? Enter American Tower…
American Tower is the leading cell tower REIT and one of the largest REITs on the market today. They build cell towers and lease them out to telecom providers. 5G is the latest and greatest with incredible speed upgrades over the likes of 4G, but 5G’s top wavelength band cannot travel very far giving an even bigger need for more cell towers.
Both REITs are leaders in their respective spaces, but both pay very different dividends. With REITs, you tend to see higher dividend yields because if you recall, they are required to pay out 90% of their taxable income to shareholders in the form of a dividend. As such, higher dividend yields and lower dividend growth is common among REITs. This is very much the case when it comes to Realty Income, which pays a 4.5% dividend yield and has a 5-year dividend growth rate of just 4%.
American Tower on the other hand is an anomaly as they pay a 2.7% dividend yield, which is not all that high, but they are also increasing their dividend at a 5-year annual rate of 17.5%, which is absolutely incredible for dividend investors. Dividend growth REITs are not all that common so finding a company like this is gold.
To wrap up, REITs continue to be a great investment. There are a ton of options, but I tend to focus on the blue-chip REITs, which are leaders in their respective sectors.
If you subscribe to my substack, you will be able to see EVERY position I hold within my dividend portfolio, which includes a good number of REITs.
Thank you for taking the time to read my guest post in The Profit Zone!
Mark Roussin, CPA (Founder of Roussin Financial)
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