Investing money in high-yielding dividend stocks can be a great way to generate passive income. Their higher yields enable investors to earn more money from every dollar they invest.
EPR Properties (NYSE: EPR) is a great option for those seeking a lucrative passive income stream. The real estate investment trust (REIT) currently has a dividend yield approaching 7%. It could turn a $5,000 investment into nearly $350 of annual passive income at that rate. Even better, the REIT pays a monthly dividend, making it appealing for those seeking regular passive income to help cover their recurring expenses. Here’s a closer look at this high-yielding REIT.
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Cashing in on a niche
EPR Properties specializes in investing in experiential real estate. It owns movie theaters, eat-and-play venues, fitness and wellness properties, attractions, and other similar properties. It leases these properties to tenants that will operate the experiences. It also has a small portfolio of educational properties (early education centers and private schools). Most of its leases are triple net (NNN), which provides very stable rental income because the tenant covers all operating costs, including routine maintenance, real estate taxes, and building insurance.
The REIT pays out a conservative percentage of its predictable rental income in dividends. In 2025, the company expects to generate between $5 and $5.16 per share of funds from operations (FFO) as adjusted, a 4.3% increase from last year at the midpoint. EPR Properties currently pays a monthly dividend of $0.295 per share ($3.54 annually). That gives it a dividend payout ratio of around 70%.
That conservative payout ratio gives the REIT a nice cushion while enabling it to retain meaningful excess free cash flow to fund new experiential property investments. EPR Properties also has a solid investment-grade balance sheet with lots of liquidity. It ended the first quarter with $20.6 million in cash and only $105 million outstanding on its $1 billion credit facility.
EPR Properties’ combination of stable cash flow, conservative payout ratio, and rock-solid balance sheet puts its high-yielding dividend on a very firm foundation.
Slow and steady growth
The REIT steadily invests money to enhance and expand its portfolio. It aims to spend between $200 million and $300 million this year. The company invested $37.7 million during the first quarter, including buying an attraction property in New Jersey for $14.3 million (Diggerland USA, the only construction-themed attraction and water park in the country). The rest of its investments were on build-to-suit development and redevelopment projects, including some Andretti Indoor Karting eat-and-play venues that will open over the next year.
EPR Properties also continued to secure new build-to-suit projects. It bought land for $1.2 million and provided $5.9 million of mortgage financing for a private club in Georgia, its first traditional golf investment. It also closed on the land for a new Pinstack Eat & Play property in Virginia (paying $1.6 million) and expects to spend $19 million on construction. EPR has now secured $148 million of experiential development and redevelopment projects it intends to fund over the next two years.
The company is funding these investments with post-dividend free cash flow, available liquidity, and capital recycling. The REIT has been strategically reducing its exposure to the theater and educational sectors by selling properties. It sold three theaters and 11 early childhood properties in the first quarter for $70.8 million ($9.4 million gain). It also received $8.1 million to fully repay two mortgages secured by early childhood properties. The company anticipates selling $80 million to $120 million of properties this year, giving it cash to recycle into its targeted experiential sectors.
The company’s current investment rate has it on track to grow its FFO per share at around a 3% to 4% annual rate. That should support a similar dividend growth rate (it raised its payment by 3.5% earlier this year). If interest rates fall, the company could ramp up its investment rate and grow even faster in the future.
A high-quality passive income stock
EPR Properties’ portfolio of experiential properties produces very stable rental income. That provides the REIT with cash to pay its lucrative monthly dividend and invest in expanding its portfolio. Those growth investments should enable the company to steadily increase its payout. That stable and growing dividend makes EPR Properties a great option for those seeking a recurring passive income stream.
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Matt DiLallo has positions in EPR Properties. The Motley Fool recommends EPR Properties. The Motley Fool has a disclosure policy.
