Real estate investment trusts (REIT) are some of the best places for Motley Fool investors to look for passive income. REITs must pay out much of their taxable income to investors, and this usually comes in the form of dividends. So, already, they’re a great investment.
In the past, many REITs focused on the industries of residences or businesses. These made sense. However, during the pandemic, these REITs took a huge hit, especially businesses. Now, the continuing housing crisis leaves them in a dire position.
An overlooked industry
There is, however, an industry among REITs that remains overlooked: industrial REITs. Industrials would include warehouse buildings, buildings for manufacturing and assembling, processing, or even distilleries. But it’s the first two points I’d like to focus on.
The manufacturing, assembling, and simple storage of products is a larger need than ever. These industrial properties support the increasing need for companies to store products due to supply-chain issues. Furthermore, e-commerce companies need them to not just store products, but to assemble and ship them out.
Therefore, industrial REITs offer a prime place for Motley Fool investors to put their attention. These companies are bound to see massive increases in revenue, leading to more acquisitions and purchases of properties, and, of course, more dividends.
Where to start
If you want solid REITs in the industrial industry, there is one I would consider right away, and that’s Dream Industrial REIT (TSX:DIR.UN). The open-ended REIT owns industrial properties in Canada and the United States and continues to grow its portfolio by expanding into Europe.
During its latest earnings report, the company made some astounding numbers. Net income grew 133% year over year to $190 million in the fourth quarter, with a 204% increase in annual net income year over year. Furthermore, its total assets increased by 71.9% to $6.1 billion year over year, with its net asset value per unit up 20.6% to $15.13 in the last quarter.
Yet the company continues to look for further opportunities, especially for purchases. This has increased their value and allows for more net income to come for the next year and the next. With inflation rising, the company should continue to see rents rise while making very little investment on their part. Plus, it trades at an insanely valuable 6.06 times earnings as of writing.
What you get
By investing in REITs like Dream Industrial stock, you’ll get dividends, of course! But you’ll also get growth. Dream shares are up 15% in the last year and 90% in the last five years. That’s something you don’t see often with REITs. Furthermore, it offers a 4.48% dividend yield, coming in at $0.70 per share per year.
Let’s say you were to invest $20,000 in Dream today. That would bring in a total of $889 in annual income as of writing! That’s an incredible amount of cash to look forward to, even without a penny of share growth. But, as we’ve seen, that looks unlikely, as e-commerce in particular continues to thrive.
Bottom line
REITs are some of the best ways to get passive income. However, these days you have to be careful. Industrial REITs are solid options for both growth and income for decades. And Dream REIT remains at the top.
