Is It Too Late to Buy These 3 Brilliant Passive Income Stocks?

The stock market has had a strong run over the last 10 years. The S&P 500 has delivered an 11.8% annualized total return. That's well above its average of 9.4% over the last 50 years.

Many stocks have delivered even higher total returns. Extra Space Storage (EXR -1.01%), Sun Communities (SUI -0.88%), and Prologis (PLD -1.54%) have pulverized the S&P 500 over the last 10 years. What makes that so impressive is that they're real estate investment trusts (REITs) more known for producing passive income. Here's a look at whether these income stocks can continue to deliver market-beating total returns.

The new storage king

Extra Space Storage has been one of the top-performing REITs over the past decade. The self-storage REIT has delivered a 333% total return (15.8% annualized), crushing the S&P 500's 205% total return.

Driving those robust returns has been its above-average growth. Extra Space Storage has consistently delivered top-tier growth in revenue and core funds from operations (FFO) per share compared to its peers in the self-storage sector. A big driver has been its brilliant strategy of expanding its third-party management platform, which delivers incremental management income with minimal capital investments. That fast-growing platform has been key in driving Extra Space's scorching core-FFO-per-share growth rate of 695% since 2011. It has also helped drive 548% dividend growth over the past 10 years.

The company is in an excellent position to continue growing at an above-average rate in the future. It recently closed its merger with rival Life Storage to become the largest operator in the sector. The deal will be immediately accretive to its earnings while enhancing its growth profile as the company institutes its best practices to boost the income of Life Storage's legacy facilities. Meanwhile, its larger scale should open the door to more growth opportunities, including expanding its management platform. Its continued growth should enable it to keep pushing its 5.1%-yielding dividend higher.

Going off the beaten path to create value

Sun Communities has quietly delivered a 317.5% total return (15.4% annualized) over the last decade. The residential REIT has gone off the beaten path by focusing on property types that get little fanfare, like manufactured home communities, RV parks, and marinas. That has turned out to be a wise move.

Manufactured home communities have historically been one of the most resilient property types. It's costly to relocate a manufactured home, which keeps residents in place. Because of that, community owners can steadily increase rents, even during a recession. Over the last 20 years, the company hasn't had a rolling four-quarter period where it didn't deliver positive same-store net operating income (SSNOI) growth (whereas multifamily focused REITs experienced three periods of negative growth). Overall, the REIT's SSNOI has grown at a 5.1% compound annual rate since 2000, outpacing multifamily REITs (3.1%) and the REIT industry average (3.2%).

Sun Communities is in an excellent position to continue delivering above-average returns. Due to limited supply growth and healthy demand, manufactured home community fundamentals remain strong. Meanwhile, the company is benefiting from the growing demand for experiences. That's driving increased RVing and boating, boosting its RV parks and marina properties. Add in acquisitions, and Sun Communities should be able to continue growing its FFO and 3%-yielding dividend at strong rates.

Ample built-in growth

Prologis has delivered a 293% total return (14.7% annualized) over the past decade. The industrial REIT has grown its core FFO and dividend at a 12% compound annual rate over the last 10 years, outpacing the S&P 500 and REIT sector average.

The company has benefited from rent growth, development projects, and acquisitions. However, its smartest move has been to become a development powerhouse. Over the last 20-plus years, Prologis has invested $41.3 billion to build 527 million square feet of new warehouse space. This investment has created an estimated $11.6 billion in value for shareholders. Prologis is in an excellent position to continue investing in value-creating development projects. It has enough land to support $38 billion of future development projects.

Meanwhile, the company has a lot of embedded rent growth. Demand for warehouse space has skyrocketed in recent years, sending rents soaring. Prologis isn't fully capturing the growth in market rents because it leases its properties under long-term agreements. However, as those leases expire, it can sign new ones at higher market rents. The company estimates this factor will drive 8% to 10% annual SSNOI growth over the next few years. Add in acquisitions, and Prologis is in a great position to continue growing its FFO and dividend (which yields 3.1%) at above-average rates.

Smart income stocks

Extra Space Storage, Sun Communities, and Prologis have delivered market-crushing returns over the last 10 years, driven by their steadily growing earnings and dividends. The REITs are in an excellent position to continue increasing value for their shareholders in the future due to their brilliant strategies. Because of that, it's not too late to buy these top-notch dividend stocks.