I think there are some great opportunities in real estate investment trusts (REITs). In my view, these can be great stocks to own for generating passive income.

There are two on my radar at the moment. Each of them pays its dividend monthly and each has a solid record of increasing its payments.

Realty Income

Top of my list of stocks to buy for monthly dividends would be Realty Income (NYSE:O). The company owns and rents out retail properties.

Realty Income focuses on managing its risk. It attempts to concentrate on securing high-quality tenants with strong credit ratings in order to minimise the risk of unpaid rent.

Shares of Realty Income have fallen by around 14% since the start of the year. As a result, the stock now has a dividend yield of 4.87%.

I’d look to invest £10,000 into this stock. In doing so, I’d anticipate generating around £40 in monthly passive income.

STAG Industrial

One of the biggest risks with Realty Income is the rise of e-commerce. I’d look to counter this in my portfolio by using the rest of my ISA allowance to buy shares in STAG Industrial (NYSE:STAG).

STAG is another REIT, but it focuses on industrial properties, such as warehouses. These are important for distribution and stand to do well as e-commerce continues to grow.

I don’t own shares in STAG at the moment, but I’d like to buy it for my portfolio to counter the risks of Realty Income. The risk with STAG is that the growth of e-commerce doesn’t materialise in the way that it might be expected to, but I hope that owning Realty Income in my portfolio offsets this risk for me.

Shares in STAG are also trading lower than they were at the start of the year. The stock is down 35% compared to its price at the beginning of January.

Due to its share price decline, STAG shares have a dividend of 4.9%, which is very similar to Realty Income. As a result, I expect a £10,000 investment to generate around £42 in monthly dividends.

Passive income

That brings me to a total of around £82 per month. In order to bring that to £85, I’d reinvest my dividends and compound my returns. This is what I do with my existing investment in Realty Income.

By reinvesting my dividends in the same stocks, I can increase my passive income. After doing this for a year, I think that I could bring my monthly dividends to over £85.

From there, I think the sky’s the limit. Reinvesting my dividends could bring my monthly income to £90 after a year, £106 after five years, and £133 after a decade.

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Right now, though, rising interest rates have been hitting property prices and shares in real estate businesses have been falling. So is now a good time to buy REITs, or is there danger on the horizon?

Property investing

I like the idea of renting out property to generate passive income and the most obvious way of doing this is by buying a property to let out. Unfortunately, there are three main obstacles to me doing this.

The first is financing. To buy a property, I’d either need huge amounts of cash that I don’t have or a mortgage that I don’t want. 

The second issue is work. If I bought a property to rent out, I’d have to find a tenant, sort out the legal work, and maintain the property, so I wouldn’t really be generating passive income. 

The third is that returns on buy-to-lets where I live look pretty uninspiring. The average rental property in my area seems to have a yield of around 3.8% before taxes and fees.

None of these problems is decisive, but all of them can be avoided if I invested in a REIT instead of buying a property to rent out.

REITs own property and rent it out to tenants. They distribute their rental income to shareholders in the form of dividends. 

Investing in a REIT allows me to avoid the major issues I have with buying a property to let out. I don’t have to buy a property outright, I don’t have to work on it, and the dividend yields can be attractive.

Interest rates

I own two REITs in my investment portfolio. They are Federal Realty Investment Trust and Realty Income Corporation.

Recently, shares in both have been coming down. This is the result of rising interest rates, which is putting pressure on the real estate sector more broadly.

Rising interest rates are bad for REITs for a few reasons. But the most pressing one is that it makes debt more expensive.

A consequence of paying out their earnings as dividends is that REITs often have to use debt to fund their growth. And higher interest rates mean that debt is more expensive.

This could be a particular problem for REITs that have debt that is due to mature soon. Higher interest rates could mean that they have to pay more in interest than they do at the moment.

Neither of the REITs that I own is particularly exposed to this, though. Their debt maturities are fairly well structured so that there isn’t an excessive amount of it expiring at any one time.

REIT investing

I still think that owning shares in a REIT is the best way for me to generate passive income from property. And I’m looking to add to my investments right now.

The prospect of higher interest rates is a genuine concern for property investors. But I think that the REITs that I own can continue to generate solid returns for me.

It’s important to pay attention to how safe the stream of dividends is, though. Buying a stock with a 9% dividend yield today is no good if the company isn’t going to be able to pay dividends after this year.

Moreover, when things go wrong with dividend stocks, they can go really wrong. A good example of this is Compass Minerals (NYSE:CMP).

Last November, Compass Minerals announced that it was cutting its dividend by 79%. Overnight the stock fell from $72.10 per share to $57.02.

There’s a general lesson here. Companies lowering their dividends can cause their stock prices to fall sharply, meaning that investors get hit both in the loss of passive income and a lower share price.

It’s therefore really important for me to make sure that the companies I own shares in aren’t likely to lower their dividends. With that in mind, here are two of the safest dividend stocks on Earth.

REITs

The stocks in question are Federal Realty Investment Trust (NYSE:FRT) and Realty Income (NYSE:O). Both are real estate investment trusts (REITs).

As REITs, both businesses make their money by renting out real estate. A consequence of being a REIT is that both companies are required to distribute 90% of their rental income in the form of dividends.

This means that neither company has the opportunity to decide not to pay dividends. Unlike Compass Minerals, management can’t decide to retain earnings to focus on growth instead of returning cash to shareholders.

In general, I think that being required to pay dividends is disadvantageous. In my view, it can leave management unable to take advantage of growth opportunities.

However, I do believe that the fact that both stocks are REITS makes for additional dividend safety. As I see it, the dividends are likely to keep flowing as long as the companies keep generating rental income.

Dividend aristocrats

Another reason for thinking that these are two of the safest dividend stocks on earth comes from their history. Realty Income is a dividend aristocrat and Federal Realty is a dividend king.

Dividend aristocrats have raised their dividend annually for at least 25 years. Realty Income has 28 years of consecutive annual dividend increases.

Federal Realty has been increasing its annual distributions for 55 years. That puts it through the 50 years required for dividend king status.

In both cases, a long history of dividend increases gives me confidence that these will continue. It means that each company has raised its payout consistently through various difficult economic environments.

Furthermore, each company’s dividend is central to its identity. Management makes information about its distribution record a central feature of its website in both cases.

Again, this indicates to me that dividend payments from both companies are likely to continue to increase.

Safe dividend stocks

Lowering its dividend can sometimes be the right thing for a company to do. But I don’t think that either Federal Realty Investment Trust or Realty Income are likely to be in this position – I see them as two of the safest dividend stocks I can buy.

Three of my investments, however, aren’t like that. There are three stocks in my portfolio that I don’t anticipate selling at any price.

This is because they are the highest-quality businesses I own. So if I sold the shares, I don’t think I’d be able to replace them with an upgrade.

Disney

The first stock I’d never sell is Walt Disney (NYSE:DIS). Both the stock and the business have had a turbulent time over the past few years, but I’ve never been tempted to sell my investment.

Like any investment, Disney stock carries some risk. In my view, the biggest risk comes from the cost of continuing to create new content, which could weigh on investment returns.

I think, however, that Disney’s content library gives it a huge advantage over its competitors that offsets this risk. Furthermore, the strength of the company’s back catalogue is basically impossible for rivals to replicate.

Disney is the only stock in this list that I’m actively buying at the moment. I think that the stock is currently undervalued and I’m looking at increasing my investment in the business.

Realty Income

I also have a substantial investment in Realty Income (NYSE:O) that I don’t ever intend to sell. Instead of selling, I plan to keep reinvesting dividends to increase my passive income.

Realty Income is a real estate investment trust (REIT) that makes money by leasing retail properties. Like other REITs, it distributes its rental income in the form of dividends.

The company is exposed to risk in the form of high property prices, which is making expansion difficult. But it has navigated these challenges well before and I think it will continue to do so.

Twenty-eight years of consecutive dividend increases make the stock a Dividend Aristocrat. It also reinforces my belief that the business can perform well in any economic environment.

Berkshire Hathaway

Lastly, I own shares in Berkshire Hathaway (NYSE:BRK.B). This is another stock that I never anticipate selling.

The risk with this stock is that the size of the underlying business limits growth opportunities. But I think that patience will be rewarded over time.

In my view, Berkshire has a unique advantage. It uses the money it receives from insurance premiums to make investments that power its earnings.

This is a good business model, but it takes a lot of capital to make it work. Underwriting its insurance obligations requires significant cash to cover potential losses.

Berkshire’s big advantage is that it has the cash to operate in this way. Other insurance operations don’t have the same protection.

This allows Berkshire to avoid unnecessary risk and be conservative in its insurance underwriting. I think this advantage is durable and so I’m never selling the stock.

Buying stocks when they’re popular is always a risky business though. Higher prices mean an increased risk of overpaying for a stock.

Yet I think that there are some interesting opportunities in dividend stocks that are off their highs at the moment. Here are three in which I’m interested right now.

Legal & General

First on my list is Legal & General (LSE:LGEN). The share price has fallen around by 21% since the start of the year, which means that the stock has a dividend yield of 7.48%.

That’s a big yield, but I’ll need to tread carefully around the stock. If the share price drops by another 21%, then it’ll take a lot of dividends to offset that loss.

I think Legal & General could be a good addition to my portfolio at these levels though. The company’s earnings per share (EPS) have increased consistently over the past 10 years and low prices might just provide an opportunity to reinvest the big dividend payments.

Howden Joinery Group

I’m also looking at shares of Howden Joinery Group (LSE:HWDN). The stock is another member of the FTSE 100 that has had a difficult time this year – the shares are currently 33% lower than they were at the beginning of January.

But given that Howden’s supplies kitchen appliances, fittings, and materials to trade sellers, if the UK enters a recession, I think it might well see its earnings declining. 

I don’t think that the falling stock price is entirely unjustifiable. But the company has a strong balance sheet and I think that the shares will prove to be a good investment over time.

In the meantime, there’s a 3.12% dividend on offer. At these levels, I’m extremely interested in buying some shares for my portfolio.

Realty Income

Last on my list is Realty Income (NYSE: O). The company is one of the largest holdings in my portfolio, but the shares have fallen by 11% so far this year.

The company is a Real Estate Investment Trust (REIT) that makes money by owning properties and renting them out to tenants. Realty Income’s main tenants are retailers.

With this type of company, the biggest risk comes from tenants not paying their rents. But Realty Income attempts to minimise this issue by focusing on tenants that have high credit ratings and are naturally immune to the threat of e-commerce.

As a result, the company has excellent rent collection statistics and its dividend has been rising steadily for years. The company distributes its income monthly and the current dividend yield is 4.66%.

Conclusion: buying dividend stocks

Stocks that have a strong history of paying rising dividends to shareholders are often good businesses. As such, it’s not a huge surprise to me that they seem to be holding up comparatively well in a recession.

But some are off their highs and I sense opportunities here for my portfolio. Legal & General, Howden Joinery, and Realty Income all seem attractive to me at current prices.

We have a $5bn preferred stock that pays us $500m per year. […] It’s been pointed out that our preferred is paying us $15 per second. So as we sit here — tick, tick, tick, tick — that’s $15 every tick. I don’t want those ticks to go away. I just love them. They go on at night when I sleep and on weekends. 

The idea of making $15 every second is almost certainly beyond me, at least in this lifetime. But that doesn’t mean that I shouldn’t benefit from passive income by owning stocks that will pay me a regular dividend. With that in mind, here are three passive income stocks that I’m thinking of buying in April.

Enterprise Products Partners

The first stock is Enterprise Products Partners (NYSE:EPD). The company owns and operates a network of oil and gas infrastructure across the US. In the light of the US’s decision to stop importing oil from Russia, I expect demand for oil produced in the US to increase. Accordingly, I’m anticipating stronger demand for Enterprise’s pipelines, which transport oil from the Permean Basin. 

Of course, if the price of oil falls and drilling becomes less lucrative, then demand for the company’s services might fall. But at the moment, the stock pays a quarterly dividend with a yield of 7.44%. As a master limited partnership, Enterprise is required by law to distribute all of its profits to its shareholders.

Realty Income

My second passive income stock to buy in April is Realty Income (NYSE:O). The company primarily owns retail real estate, with a focus on tenants that are immune to the rise of e-commerce, such as convenience stores. I’ve been an admirer of this business for some time and its consistent ability to maintain high occupancy rates and rent collection stats. I own shares in my portfolio and anticipate buying more in April.

Realty Income is a REIT. As such, it is required to distribute 90% of its rental income to shareholders in the form of dividends. That’s great for investors seeking passive income, but it’s worth noting that being unable to reinvest its earnings does make it difficult for the company to grow. The stock currently distributes its earnings monthly and the dividend yield is 4.42%.

Agree Realty

Lastly, I’m looking at Agree Realty (NYSE:ADC). In many ways, the company is a smaller version of Realty Income — it’s another REIT that concentrates on the retail sector and looks for high-quality tenants. Being smaller can also have its advantages. Opportunities that are too small to make a meaningful difference to an operation with a $40bn market cap (like Realty Income) might be big enough to be attractive for a business with a $4.5bn market cap (like Agree Realty).

I see the risks and rewards of Agree Realty as broadly similar to Realty Income. But since I think they’re both high-quality operations, I’m very happy owning both in my portfolio. When I’m looking to add to my stream of passive income in April, Agree Realty will be near the top of my list.

The REIT that I’ve been buying recently is Realty Income (NYSE: O). Unlike most REITs, the company pays its dividend monthly, rather than quarterly. This isn’t why I’ve been buying it, though. I’ve been buying it because I think it’s a good company with a strong track record and decent future prospects.

The company primarily owns retail properties and increased its portfolio from 1,197 properties in 2002 to 7,018 properties by the end of Q3 of 2021. It also maintained an occupancy rate of over 95% during each of these years. More recently, the company has increased its retail portfolio by merging with VEREIT and reduced its office exposure by spinning off Orion Office REIT. During the Q3 2021 earnings call, management reported occupancy rates of 98.8% and the collection of almost 100% of contractual rents. Guidance for adjusted funds from operations for 2022 came in at $3.84-3.97 (up from an expected $3.59 for 2021).

Realty Income has consistently maintained high figures for occupancy and rent collection, and I think it can continue to do so moving forward. An investment like this has three obvious sources of risk. One comes from rising interest rates pushing down property prices and the price of Realty Income’s shares. A second comes from opportunities for growth being limited as the company expands. A third comes from the growth of e-commerce leaving Realty Income with empty buildings or tenants unable to pay their rents.

Whilst these risks are real, I think that there are considerations that mitigate them. Since I view my investment as buying an income-generating asset that I don’t intend to sell, I’m not concerned about the price of shares going down. As long as the company maintains its high rates of occupancy and rent collection, I think things should work out fine. During the Q3 earnings call, the company reported sourcing over $24bn of acquisition opportunities, which I view as an indication that there are still meaningful opportunities to grow the business available. Lastly, Realty Income’s tenant base is overwhelmingly made up of businesses that have some protection from the threat of e-commerce, such as convenience stores, pharmacies, and fast-food restaurants, which I think means that the risk of the company’s tenants defaulting or leaving is limited.

Realty Income is a favourite amongst investors looking for reliable passive income. I think this status is well deserved, and that’s why I’ve been adding it to my portfolio. Sometimes, the best ideas are hiding in plain sight and it’s best not to overcomplicate things.