You work hard for your money. For this reason, it should work hard on your behalf when you invest it, especially if you are looking for passive income. Ideally, you would want income streams that increase steadily, as this can help you reach your financial goals faster.
A great option for those looking for a growing stream of passive income is REP properties (NYSE: EPR). The real estate investment company (REITs) pays a monthly dividend that it should have no problem growing in the years to come.
An attractive source of income
EPR Properties is a specialist REIT focused on owning experiential real estate. These properties include theaters, dining and gaming venues, ski resorts, experiential accommodations (such as water parks), gaming facilities, and other attractions.
The company currently has 355 triple net rental pitches (NNN) to more than 200 tenants. This lease structure makes the tenant responsible for insurance, maintenance and property taxes. Because they cover these variable costs, EPR’s leases generate very stable cash flows to support its dividend.
The REIT currently earns $0.25 per month Dividend payment, which equals $3 per share for the year. This is 10% more than last year following a dividend increase in February. At the company’s recent share price of around $48, EPR is offering a 6.8% dividend yield. This is well above the average REIT sector return of around 3.4% and the 1.6% return of the S&P500 index fund. This payout rate implies that every $1,000 invested in the business will produce $70 in passive income over the next year.
The business can easily sustain this stream of income. EPR Properties expects to generate between $4.39 and $4.55 per share in funds from operations (FFO) this year, implying a dividend distribution rate between 66% and 68%. This is a relatively conservative level for a REIT, allowing EPR to retain cash to help fund acquisitions.
Meanwhile, the company has a strong investment-grade balance sheet, with plenty of cash, including $323.8 million in cash and a $1 billion untapped credit facility. This gives it great financial flexibility to support the dividend and its expansion.
The room to keep growing
EPR Properties plans to use its financial flexibility to develop its experiential real estate portfolio. The REIT intends to spend between $500 million and $700 million on acquisitions this year. By early May, the company had spent $90.5 million expanding its portfolio, including buying a fitness and wellness property and an 85% stake in an experiential lodging property.
Last month he significantly increased this count when it agreed to buy the Village Vacances Valcartier resort and hotel in Quebec and the Calypso water park in Ontario for a combined $142 million. Meanwhile, it sees its capital spending increasing in the second half, driven by its growing pipeline of experiential real estate acquisition opportunities.
Given the timing of these transactions, they should help drive growth in FFO per share over the coming quarters. This paves the way for EPR Properties to give investors another raise next year.
The REIT sees a huge opportunity to continue to acquire experiential real estate. He estimates that there is an addressable market of over $100 billion for such properties. This is a huge opportunity for a company that currently owns $6.5 billion in real estate. Given its strong financial profile, it has the flexibility to fund attractive opportunities as they arise while paying a growing dividend.
Good income now, even more later
EPR Properties stands out as a great option for those looking for passive income. It pays an above-average monthly dividend backed by a strong portfolio and solid finances. In the meantime, he has a huge opportunity to expand his portfolio, which should allow him to continue to increase the dividend.
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Matthew DiLallo holds positions within EPR Properties. The Motley Fool recommends EPR Properties. 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.