For many people, passive income when they are no longer actively working is anchored in their social security benefits. But for the average retiree, that's just $1,844.76 per month, according to November 2023 numbers from the Social Security Administration.
For most people, this means relying on other sources of income, including the dividends you can earn from your stock investments. I'm an average retiree myself, and over the past few years I've amassed a modest collection of real estate investment trusts (REITs) in my stock portfolio just for this purpose.
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Tax law requires REITs to pay at least 90% of their taxable income as dividends. This income comes from real estate pools in just about every sector imaginable, allowing you to diversify your choices while selecting companies that have a long track record of reliably growing their business and dividends.
I would like to highlight three of them here American Tower (AMT 0.01%), Federal Realty Investment Trust (FRT -0.21%) and Apartment communities in Central America (MAA 0.64%).
The chart below shows the steady growth of their dividends and the consistency of their returns since American Tower converted to a REIT in 2012, approximately 15 years after its original IPO.
MAA dividend data from YCharts
You can find out more about each one here.
1. American Tower
American Tower is one of the world's largest REITs and owner of multi-tenant communications properties. The Company has a portfolio of approximately 225,000 traditional cell towers and other antenna sites around the world, as well as a network of data centers throughout the United States.
The growing global appetite for essential space among thousands of customers, including all major wireless carriers, has allowed Boston-based American Tower to increase its dividend every year since its REIT conversion, including by an average of 12.5% each year after three.
American Tower shares currently yield about 3.2% on a share price of about $214 and comfortably cover that dividend with a payout ratio of about 61% of cash flow.
2. Federal Realty Investment Trust
Federal Realty is a dividend king and one of the oldest REITs. It was originally founded in 1962, not long after Congress approved REITs to make real estate investing more accessible to the average American.
The Dividend King status comes from 56 consecutive years of dividend increases. Revenue comes from a collection of 102 outdoor centers that house 3,300 commercial tenants and 3,100 residential units.
Its location in affluent, suburban markets on the East and West Coasts should help suburban Maryland-based Federal Realty maintain the resilience it has demonstrated in good economies, bad economies and everything in between.
Federal Realty stock currently trades for about $102 per share and has a yield of about 4.3%. Its payout ratio of around 51% is based on cash flow that is modest enough to suggest that dividends can grow faster than the roughly 1.3% per year of the last three years, if the C-suite is so inclined.
3. Shared apartments in Central America
Mid-America Apartment Communities (MAA) is a Tennessee-based developer and manager of apartment communities in the Mid-Atlantic, Southeast and Southwest.
A portfolio that included 101,986 units in 300 apartment complexes in 16 states and the District of Columbia as of June 30, 2023, makes MAA one of the largest multifamily property owners in the United States.
The growing number of young professionals, families and downsized retirees in the Sunbelt and other desirable markets MAA focuses on should keep demand for its living spaces high. The stock now trades at about $132 per share, yields about 4.3%, and MAA has had a 14-year streak of dividend increases.
This includes impressive three-year annualized growth of just over 23% and a payout ratio of just 55%, based on cash flow that should easily support further increases.
Reliable cash flow for pensioners, whether passive or not
American Tower, Federal Realty, and MAA are excellent options for 2024 and beyond for reliable cash flow (and the possibility of capital growth) for people looking to supplement their income, no matter how active or passive their retirement may be.
Marc Rapport has held positions at American Tower, Federal Realty Investment Trust and Mid-America Apartment Communities. The Motley Fool has positions in and recommends the American Tower and Mid-America apartment communities. The Motley Fool recommends the following options: long January 2026 $180 calls on American Tower and short $185 January 2026 calls on American Tower. The Motley Fool has a disclosure policy.