Real estate investment trusts (REITs) offer investors a great opportunity for passive income. REITs are a type of security that allows investors to purchase shares in a portfolio of income-producing assets, such as real estate, mortgages, or other investments. REITs offer investors benefits such as diversification, access to professionally managed real estate portfolios, and the potential for steady returns. Many dividend investors like the relatively high and durable yields that they can get with secure REITs. Additionally, REITs are publicly traded, meaning they can be bought and sold on major exchanges, offering liquidity. REITs have historically outperformed other investments, providing investors with stable income and appreciation potential. And dividend investors do not need to worry about managing physical assets, so the income is passive income. Furthermore, REITs provide income-generating opportunities to those with limited capital resources, as REITs are typically bought and sold in small denominations. The combination of high returns, diversification, and liquidity make REITs an attractive option for investors looking for passive income.
REITs provide dividend investors with high liquidity and a steady income stream, making them a viable option for long-term compound growth. Furthermore, REITs offer exposure to a range of real estate assets, allowing investors to diversify their portfolios while still gaining exposure to the real estate market. The high dividend yields associated with REITs provide investors with a steady income stream, allowing them to reinvest their dividends and increase the overall portfolio value. This means that REIT investors can take advantage of the dividend snowball effect. Finally, REITs can take advantage of tax laws which can generate noteworthy tax savings for investors, further increasing the overall rate of return. For these reasons, REITs are an excellent way for investors to compound their wealth over time.
Investing in REITs can provide secure income because of the diverse portfolio of income-producing real estate assets that REITs typically invest in. REITs invest in real estate, such as apartment buildings, shopping centers, office buildings, and other real estate assets. The diversification of the investments for dividend investors, combined with the fact that most investments are held for the long term, ensures a stable income stream. Furthermore, REITs must pay out 90% of their taxable income to shareholders, making them an ideal choice for income investors. REITs also offer investors the ability to diversify their portfolios into different real estate, which can reduce volatility and provide greater income stability. Overall, investing in REITs can provide a secure income stream with potential upside potential.
Investment opportunity in Essential Properties Realty Trust (EPRT)
Essential Properties Realty Trust is a company with a proven track record of success for investors. The company’s low-risk, conservative strategy focuses on steady growth and capital preservation. Its portfolio comprises high-quality, well-positioned retail, restaurant, and service properties in the United States. Essential Properties Realty Trust has a team of experienced real estate professionals that are knowledgeable about the current market and have a deep understanding of the company’s investments. The company also understands the importance of maintaining a diversified portfolio, which helps to hedge risk and ensure a steady rate of return. With its conservative approach to investing and steady growth, Essential Properties Realty Trust is an excellent choice for investors looking for a reliable, low-risk investment.
EPRT is a relatively recent listing, and so there is little track record. They have, however, proven to demonstrate strong AFFO growth, providing good returns for many investors. The current dividend yield is about 4.6% (Figure 1). The company does not have an S&P credit rating but does have a respectable 85 Quality Score on Stock Rover, providing some assurance of the caliber of the company and the conservative management of the assets.
If we assume that analysts are going to be reasonably accurate in the AFFO forecasts, and we assume the prices return to the ‘normal’ P/AFFO ratio of about 20x, by 2024, this might represent a 55% total rate of return or an annualized rate of return of about 23%. This combines dividend yield and gains of about 5-6% of AFFO each year.
Concluding thoughts on the opportunity in EPRT
There will always be risks with investments – EPRT does not have a strong margin of safety at present, and if AFFO growth slows, we may see the normalized P/AFFO ratio slip a little, making it take longer for prices to return to higher levels. However, while we wait, we can collect a compelling dividend yield. We should note the 5.6% and 7.5% annual dividend increases in recent years, suggesting the opportunity also to capture some reasonable growth in the income in this investment.
Dr. Lincoln C. Wood teaches at the University of Otago in New Zealand. He is an avid investor and educator. He loves cash flow, income, and dividends when investing. He likes to buy undervalued companies with strong advantages and earnings growth.