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Love Passive Income? Investing $10,000 in This REIT Could Make You $70 Each Month

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Passive income sounds soothing right now, doesn’t it? Heck, passive anything sounds soothing while watching your investments get crushed so soundly and so broadly.

Passive income basically means you get paid for your investment without actively managing the asset. Dividend stocks are a good example. Within that subset are real estate investment trusts (REITs), which are portfolios of income-producing assets whose managers are required by tax law to fork over at least 90% of their taxable earnings to shareholders.

Dividends are how that happens. There are about 225 publicly traded REITs, and they produce an average yield of about 3.5%, more than double that of the S&P 500. That means some do better than that, of course, and there are nearly 20 that pay dividends monthly.

A payout that doesn’t yield to inflation 

Gladstone Commercial (GOOD -3.77%) is one of those. This owner of 131 net lease office and industrial properties in 27 states pays a monthly dividend of $0.1254 a share. Plunk $10,000 down on it now, and you’ll get about 555 shares at about $18 each, which will pay you $69.60 or so a month.

That doesn’t sound like a lot of money, but keep in mind the yield. Gladstone Commercial’s stock is now yielding about 8.1%. That’s about the pace of inflation, so that’s pretty good. And it has a long history of yielding more than inflation.

REITs are often seen as an alternative, or portfolio companion, to bonds and bond funds, and rising interest rates certainly affect both. In this case, GOOD shares are down about 30% from their peak around the first of the year, and there’s reason to believe that means this is a good time to buy some for the long term. For starters, check this out:

GOOD data by YCharts

There are a couple of things I like about this chart. For one, buying and holding the stock of strong companies is a great way to build wealth over the long term. It also shows the impact that dividend income has on total return. Gladstone Commercial’s share price performance is pretty unimpressive. But factor in the dividend and — had you invested $10,000 investment in the shares since Gladstone Commercial’s initial public offering in 2003 — you’d have an investment valued at $55,000, and all the while keeping pace with the S&P 500.

This chart also shows Gladstone Commercial’s commitment to strong dividend payouts. That also requires a portfolio that can produce the income to fund those dividends. The REIT has expanded its portfolio by 18% per year since its IPO and has doubled its assets since January 2011. That includes adding five distribution and manufacturing properties just in recent weeks.

Planning to do more GOOD

The company also says that 97% of its space is occupied and all the rent was paid in May. Long-term leases also dominate the portfolio, which should help Gladstone Commercial weather a coming recession, as will management’s own experience through the economic storms of the past two decades.

Gladstone Commercial stock also appears to be pretty cheap right now, with a trailing-12-month ratio of price-to-funds from operations (FFO) of 9.3. Compare that to, say, Prologis, the growing behemoth of all industrial REITs, which is now trading at 15 based on the same metric.

There are 50 stocks, including 18 REITs, that pay monthly dividends. I like some of them; others, not so much. And some are in businesses I don’t understand enough to really consider. I do like Gladstone Commercial. I own it now and plan to add to it over time.