3 Stocks That Make the Perfect Investment for the Average Retiree Looking for Passive Income

Passive income when you’re no longer actively working is anchored for many by their Social Security draw. But for the average retiree, that’s only $1,844.76 a month, according to November 2023 figures from the Social Security Administration.

For most folks, that means relying on other income sources, including the dividends you can generate from your stock investments. I’m an average retiree myself, and I’ve amassed a modest collection of real estate investment trusts (REITs) in my stock portfolio over the past few years just for that purpose.

By tax law, REITs must pay at least 90% of their taxable income as dividends. That income comes from pools of property across about any sector you can think of, so you can diversify your selections while choosing companies with long track records of reliably growing their business and their dividends.

Three that I’d like to highlight here are American Tower (AMT 0.84%), Federal Realty Investment Trust (FRT 0.35%), and Mid-America Apartment Communities (MAA 1.30%).

The chart below shows the steady growth of their dividends and the consistency of their yields since American Tower converted into a REIT in 2012, about 15 years after its original IPO.

MAA Dividend data by YCharts

Here’s more about each.

1. American Tower

American Tower is one of the world’s largest REITs and owners of multi-tenant communications real estate, with a portfolio of about 225,000 traditional cell towers and other antenna sites around the world and a network of data centers across the United States.

The growing global appetite for must-have space by thousands of customers, including all the major mobile carriers, has enabled Boston-based American Tower to raise its dividend every year since its REIT conversion, including by an average of 12.5% each year for the past three.

American Tower stock currently yields about 3.2% at a share price of about $214 and comfortably covers that dividend with a payout ratio of about 61% of its cash flow.

2. Federal Realty Investment Trust

Federal Realty is a Dividend King and one of the oldest REITs. It was originally founded in 1962 not long after Congress authorized REITs as a way to make real estate investing more accessible to the average American.

The Dividend King status comes from its 56 straight years of dividend increases. Its income comes from a collection of 102 open-air centers, housing 3,300 commercial tenants and 3,100 residential units.

Their location in affluent, first-ring suburban markets on the East and West Coasts should help suburban Maryland-based Federal Realty continue the resilience it’s shown through good and bad economies and everything in between.

Federal Realty stock currently trades for about $102 a share and yields about 4.3%. Its payout ratio of about 51% is based on cashflow that’s modest enough to point to the ability to grow the dividends faster than the 1.3% a year or so of the past three years, if the C-suite is so inclined.

3. Mid-America Apartment Communities

Mid-America Apartment Communities, or MAA, is a Tennessee-based developer and manager of apartment communities in the mid-Atlantic, Southeast, and Southwest.

A portfolio that as of June 30, 2023 included 101,986 units in 300 apartment complexes across 16 states and the District of Columbia makes MAA one of the U.S.’s largest owners of multifamily properties.

The growing ranks of young professionals, families, and downsizing retirees in the Sunbelt and other desirable markets where MAA is focused should keep demand for its living spaces high. Meanwhile, its stock is trading at about $132 a share and yielding about 4.3%, and MAA is riding a 14-year streak of dividend increases.

That includes an impressive annualized three-year growth of just over 23% and a payout ratio of only 55%, based on cashflow that should easily support even more boosts.

Reliable payment stream for retirees, passive or otherwise

American Tower, Federal Realty, and MAA are excellent choices for 2024 and beyond for reliable payment streams (and the possibility of capital growth) for folks seeking to bolster their income, no matter how active or passive their retirement may be.

Marc Rapport has positions in American Tower, Federal Realty Investment Trust, and Mid-America Apartment Communities. The Motley Fool has positions in and recommends American Tower and Mid-America Apartment Communities. The Motley Fool recommends the following options: long January 2026 $180 calls on American Tower and short January 2026 $185 calls on American Tower. The Motley Fool has a disclosure policy.