If you’ve ever been a landlord, you know finding reliable tenants is everything. Tracking down late payments every month makes your passive income stream a lot less passive.
That’s one reason why so many investors like real estate investment trusts (REITs) — publicly traded companies that collect rent from their properties and pass it along to shareholders in the form of dividends.
Investors don’t have to worry about screening or evicting tenants. Instead, they simply sit back and enjoy the dividend checks rolling in when they pick a winning REIT.
And some REITs have seriously blue-chip tenants — including the U.S. government. We all pay taxes, so why not get some money back in quarterly distributions?
Here are a couple ways to act as landlord to Uncle Sam. With markets being volatile, a steady stream of rental income might make you sleep better at night.
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Easterly Government Properties (DEA)
Easterly is not the largest REIT on the market, but it stands out among its peers for a very simple reason: The company’s mission is to acquire, develop and manage commercial properties leased to the U.S. government.
In its latest investor presentation, the REIT said 98% of its lease income is “backed by full faith and credit of the U.S. government.” Few tenants are more reliable.
As of Sept. 30, Easterly’s portfolio consisted of 86 properties totaling 8.7 million square feet. They were 99.3% leased, with a weighted average remaining lease term of 10.5 years.
In July of 2021, the company raised its quarterly dividend payout to 26.5 cents per share. At the current share price, that translates to an annual yield of 7.8%.
While Easterly might seem like an obvious choice, given the caliber of its tenants, the stock is actually down 39% over the past 12 months.
And that could give contrarian investors something to think about.
While Easterly has received an average rating of Hold from Wall Street analysts, their average price target of $17.25 is 24% higher than where the stock sits today.
Office Properties Income Trust (OPI)
As the name suggests, this REIT owns a lot of office buildings — its portfolio consists of 162 properties totaling 21.2 million square feet.
While real estate prices in the U.S. have been trending upward, OPI hasn’t gotten much investor attention.
Over the past 12 months, OPI shares have tumbled 44%.
But there is something that makes the company stand out: it has a quarterly dividend rate of 55 cents per share and an annual yield of 16.4%.
To put that in perspective, the average S&P 500 company yields just 1.7% at the moment.
Unlike Easterly, OPI is not a pure-play government landlord. But the U.S. government is the REIT’s biggest tenant, contributing 19.1% to its annualized rental income.
Its other top tenants include big names like Google parent company Alphabet, the State of California and Bank of America.
The company says it earns 63% of its revenue from investment grade tenants — that is, tenants that pose a low risk of default.
In Q3 of 2022, the REIT leased 606,000 square feet of space for a weighted average lease term of 7.2 years and a weighted average roll up in rent of 21.6%.
Just like Easterly, OPI has received an average rating of Hold from analysts but the best could be yet to come: the average price target on OPI is $20 – roughly 46% above the current levels.
A better way to buy property?
Of course, the U.S. government isn’t the only reliable tenant out there.
Amid hot inflation and the uncertain economy, real estate moguls are still finding various ways to effectively invest their millions.
Prime commercial real estate, in general, has outperformed the S&P 500 over a 25-year period. With the help of new platforms, these kinds of opportunities are now available to retail investors. Not just the ultra rich.
With a single investment, investors can own institutional-quality properties leased by brands like CVS, Kroger and Walmart — and collect stable grocery store-anchored income on a quarterly basis.
This article provides information only and should not be construed as advice. It is provided without warranty of any kind.
Source: https://finance.yahoo.com/news/become-uncle-sams-landlord-earn-120000781.html