3 Durable Dividend Stocks to Buy for a Lifetime of Passive Income

Some dividends are more durable than others. That’s due to a combination of the underlying company’s financial strength and the resiliency of its business model. Companies with those characteristics make excellent ones to buy and hold for a lifetime of stable and growing dividend income.

Many real estate investment trusts (REITs) have those durable traits, including Agree Realty (ADC), Stag Industrial (STAG), and Sun Communities (SUI). That makes them ideal for those seeking enduring income that should stand the test of time.

Agree Realty has been the model of consistency over the years. The retail REIT has grown its dividend at a solid 5.7% annual rate during the past 10 years. Its dividend currently yields over 4%, putting it several times higher than the S&P 500’s (^GSPC) 1.2% yield.

The company has built a very strong foundation. It focuses on owning freestanding properties leased to high-quality retailers (67.5% have investment-grade credit) in resilient sectors (e.g., grocery, home improvement, tire and auto service, and convenience stores). It utilizes long-term net leases or ground leases that provide predictable rental income because tenants cover all operating costs (including routine maintenance, building insurance, and real estate taxes).

Agree Realty also has a very strong financial foundation. It has an excellent investment-grade credit rating backed by a low leverage ratio. That gives it the financial flexibility to continue acquiring income-generating retail properties. It also has a very conservative dividend payout ratio for a REIT, at 73% of its adjusted funds from operations (FFO).

The company has a long growth runway ahead. It works directly with many high-quality retailers that still own over 168,000 locations. That should provide the REIT with a steady stream of sale-leaseback transactions in the coming years.

Robust demand for this real estate

Stag Industrial has also been very consistent over the years. The industrial REIT has increased its dividend every year since it came public in 2011. It also offers a dividend yield above 4%.

The company owns a diversified portfolio of industrial real estate, like warehouses and light manufacturing facilities. It leases these properties to high-quality tenants under long-term agreements that escalate rents each year (2.8% on average in 2024). Demand for industrial properties is robust due to the growing adoption of e-commerce and onshoring of manufacturing. Because of that, it’s capturing much higher rental rates once legacy leases expire (30% rental increases on new and renewal leases for the same space in 2024).

Stag Industrial also has a low-leverage balance sheet and a conservative dividend payout ratio (73%). It’s on track to generate about $100 million in post-dividend free cash flow this year, giving it additional cash to invest in acquiring more income-producing industrial properties. The company expects to acquire $500 million to $700 million of properties this year and has $4.2 billion of potential investments in its deal pipeline.

Durable demand

Sun Communities has never cut or suspended its dividend in its three decades as a public company. Meanwhile, the REIT has routinely increased its payments over the years, including the last eight in a row. The unique residential REIT currently yields 3%.

The REIT focuses on properties off the beaten path from other real estate investors, like manufactured home communities, RV resorts, marinas, and holiday parks in the U.K. These properties benefit from very durable demand. For example, it’s very expensive to relocate a manufactured home, which keeps residents in place. Meanwhile, demand for outside experiences is growing, which is driving demand for space at its RV parks and marinas.

As a result of these factors, Sun Communities has delivered 20 straight years of rising same-store net operating income (NOI). Overall, NOI has increased at a 5.2% compound annual rate since 2000, faster than the REIT sector average (3.2%).

Sun Communities complements its solid rental growth rate by making acquisitions and investing in expanding existing locations. For example, it has added marinas and U.K. holiday parks to its portfolio over the past several years. Meanwhile, when opportunities arise, it will acquire additional manufactured home communities and RV parks. The REIT has ample financial flexibility to continue expanding its portfolio thanks to its solid investment-grade balance sheet.

Three rock-solid dividend stocks
Agree Realty, Stag Industrial, and Sun Communities have long records of paying durable and growing dividends. The REITs back their payouts with resilient real estate portfolios and strong balance sheets. Because of that, they should be able to continue providing their investors with steadily rising income in the decades ahead.

— Matt DiLallo

Source: The Motley Fool