Why I Can't Stop Buying This 6.2%-Yielding Monthly Dividend Stock

Generating passive income is a core aspect of my investment strategy. It provides me with additional cash flow that I can reinvest to grow my wealth and passive income. Once my passive income exceeds my living expenses, I'll be financially independent.

Investing in high-yielding dividend growth stocks is the foundation of my passive income strategy. Their higher yields enable me to generate more income from every dollar I invest compared to lower-yielding alternatives, while their rising payouts steadily provide me with more income each year.

One high-yielding dividend stock I can't stop buying is EPR Properties (NYSE: EPR). The real estate investment trust (REIT) pays a monthly dividend that currently yields around 6.2%, making it ideal for generating passive income.

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A rock-solid income stock

EPR Properties is a REIT that specializes in investing in experiential real estate. It owns movie theaters, eat and play venues, attractions and cultural properties, ski resorts, and fitness and wellness properties. The REIT leases these properties to companies that operate the experiences.

Most of its leases are long-term, triple net (NNN) leases, which require tenants to cover all property operating expenses, including routine maintenance, real estate taxes, and building insurance. That lease structure enables EPR Properties to collect very stable rental income each month.

The company expects to generate between $5.00 and $5.16 per share of funds from operations (FFO) as adjusted this year. That's more than enough cash flow to cover the REIT's high-yielding dividend of $0.295 per share each month ($3.54 annualized). EPR's payout level gives it a nice cushion and allows it to retain meaningful excess cash flow to invest in new experiential properties.

The REIT further supports its high-yielding dividend with a strong balance sheet. It has an investment-grade-rated credit rating and lots of liquidity. EPR ended the first quarter with $20.6 million in cash and only $105 million in outstanding borrowings on its $1 billion credit facility. That recently gave it the flexibility to repay a $300 million debt maturity without having to access the volatile credit markets.

EPR Properties' combination of stable income, a low dividend payout ratio, and a solid balance sheet put its high-yielding monthly dividend on a very firm foundation.

Lots of room to grow the dividend

EPR Properties has steadily grown its experiential property portfolio over the years by investing in new properties. It will acquire operating properties in sale-leaseback transactions and invest in experiential development and redevelopment projects. These additions grow its rental income, which enables the REIT to increase its dividend.

The company estimates that it has the ability to fund $200 million to $300 million of new investments annually internally. It can finance that investment rate through a combination of post-dividend free cash flow, new debt while staying around its current leverage target, and capital recycling initiatives. The REIT has been selling off some of its theater properties and pieces of its small educational property portfolio to reinvest in new experiential properties. It currently targets selling $80 million to $120 million of properties this year.

EPR's investment rate should support 3% to 4% annual growth in its FFO per share. That should enable it to increase its dividend at a similar yearly pace. It raised its payout by 3.5% earlier this year.

The REIT estimates that the total addressable market opportunity for investing in experiential real estate is in excess of $100 billion. Given the size of its current portfolio ($6.4 billion of experiential real estate), it has plenty of room to expand.

The company invested $37.7 million into new properties during the first quarter, including buying an attraction property for $14.3 million. It has lined up another $148 million of experiential development and redevelopment projects that it expects to fund over the next two years, including its first investment in the traditional golf sector (a private club in Georgia).

An exciting passive income producer

EPR Properties has everything I like to see in a passive income investment. It pays a higher-yielding dividend that should continue to grow steadily in the future. Because of that, it allows me to generate more income from every dollar I invest in its stock, while positioning me to produce even more income in the future as it increases its payout. That growing income stream is why I can't stop buying this monthly dividend stock.

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Matt DiLallo has positions in EPR Properties. The Motley Fool has positions in and recommends EPR Properties. The Motley Fool has a disclosure policy.