Got $1,000? This 7%-Yielding Dividend Stock Could Turn It Into a Lucrative Monthly Passive Income Stream.

Matt DiLallo, The Motley Fool

Sun, Nov 3, 2024, 4:42 AM 4 min read

EPR Properties (NYSE: EPR) stands out among dividend stocks as a great option for those desiring passive income. The real estate investment trust (REIT) pays a monthly dividend, as opposed to the standard quarterly payout, and offers a very attractive dividend yield of more than 7%. For comparison, the S&P 500 yields less than 1.5%. Here's a closer look at some other features that make it an ideal option for passive income.

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An income experience

EPR Properties is a unique REIT. It focuses on owning experiential properties, such as movie theaters, attractions, and experiential lodging properties. It leases these properties to tenants that operate those experiences. Those leases supply the REIT with relatively stable rental income that it uses to pay dividends.

The REIT currently yields more than 7%. At that rate, it could turn a $1,000 investment into more than $70 of annual dividend income, or nearly $6 each month. The more you invest, the more dividend income you stand to collect each month.

That high-yielding dividend is on a very sustainable foundation. EPR Properties expects to produce between $4.80 and $4.92 per share of funds from operations (FFO) as adjusted this year. That's about 3.2% higher than last year at the midpoint. With its current annual dividend rate at $3.42 per share, the REIT has a comfortable dividend payout ratio of around 70%. That gives it a nice cushion while allowing it to retain a decent amount of cash to fund new income-generating investments.

EPR Properties also has a solid financial position. It has investment-grade credit, backed by a low leverage ratio and primarily long-term, fixed-rate debt. It ended the third quarter with $35.3 million of cash on its balance sheet and only $169 million outstanding on its $1 billion credit facility after recently repaying a $136.6 million debt maturity.

Growing bigger and better

EPR Properties is steadily enhancing and expanding its income-producing experiential real estate portfolio. The REIT invested $82 million during the third quarter, including spending $52 million to buy a fitness and wellness property in Colorado. That brought its year-to-date total to $214.6 million, which also included spending on experiential build-to-suit development and redevelopment projects. The company expects its investment spending for the year to range between $225 million and $275 million.

The REIT has already committed to invest about $150 million into additional experiential development and redevelopment projects it expects to fund over the next two years. That provides some visibility into its future growth prospects.

EPR Properties plans to fund future investments with retained cash after paying dividends, its credit facility, and capital recycling. The company has been selling off non-core properties, including movie theaters and educational properties. It has sold $65.1 million of properties through the first nine months of this year, recognizing a $16 million gain on those sales. That's giving it additional cash to invest in higher-quality properties while maintaining its strong financial position.

The company's investments to enhance and expand its portfolio should grow its rental income. That should enable the REIT to increase its dividend in the future. It gave investors a 3.6% raise earlier this year.

An excellent passive income investment

EPR Properties pays a high-yielding monthly dividend that's on a very sustainable foundation. The REIT should be able to increase its payment in the future as it improves and grows its experiential real estate portfolio. These features make it an ideal investment for those seeking to collect passive income.

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