Investing in real estate can be a great way to generate passive income. Congress made investing in income-producing real estate accessible to all by creating real estate investment trusts (REITs) in 1960. Now anyone can start generating income from the sector.  

Stag Industrial (STAG -0.59%) is an ideal REIT for income seekers. It pays a monthly dividend with an above-average current yield of 4.3%, much higher than the 1.7% dividend yield offered by an S&P 500 Index Fund. Here's a closer look at this great income-producing REIT.

Robust demand for its real estate

Stag Industrial owns industrial real estate like warehouses and light manufacturing facilities. Demand for these properties is strong. CEO Bill Crooker pointed out the catalysts on the company's recent first-quarter earnings call. He noted: 

The industrial market continues to benefit from strong demand driven by multiple secular tailwinds. E-commerce and supply chain reconfiguration have been consistent demand drivers with a diversified mix of industries vying for space across our portfolio. We are experiencing healthy demand from food and beverage tenants, the automobile sector, and third-party logistics providers.

Robust demand is driving rental rates skyward as long-term leases expire. Stag signed 10.4 million square feet of new and renewal leases in the first quarter, addressing 78.2% of its available space for the year. Rental rates on those leases were a staggering 30.6% above prior rates on the same space. 

The company isn't fully benefiting from the strong industrial market because it signs long-term leases with tenants. Those contracts have an average annual rental escalator above 2.5%. The company's same-store net operating income, accordingly, grew by only 6.9% in the first quarter. However, it has a lot of rental growth upside as existing leases expire and eventually roll over the market rates, which will likely keep rising. 

A solid foundation for continued expansion

Stag Industrial's strong portfolio generates lots of stable rental income. The company pays less than 80% of that money to investors to support its dividend. That allows it to retain substantial cash (about $80 million annually) to finance new property investments.

The industrial REIT also has a solid balance sheet. It ended the first quarter with a reasonable leverage ratio of 5.0 -- at the low end of its 5.0 to 5.5 target range -- $778.9 million of available liquidity, and minimal debt maturities for the next two years. That gives it lots of financial flexibility to fund new investments. 

Stag will also recycle capital by selling properties to fund higher-return investments. For example, it sold two buildings for $37.2 million in the first quarter. Meanwhile, the REIT closed one acquisition early in the second quarter for $26.7 million and had another building under contract. It's also investing $68 million to develop two new buildings it expects to complete in July. It has already seen strong interest from prospective tenants in leasing these buildings. 

Those deals are a small fraction of its current pipeline. Stag is evaluating 154 buildings representing $3 billion of investment potential. It won't close all those deals. However, it has the financial flexibility to expand its portfolio as attractive opportunities emerge. 

Along with rent growth, those future acquisitions and other investments will help grow Stag's cash flow, further supporting its monthly dividend. It should also allow the company to continue modestly increasing the payout each year. 

A rock-solid REIT for collecting passive income

Stag Industrial owns a growing portfolio of in-demand industrial properties. That's growing its rental income to support its attractive monthly dividend. It's a great option for those seeking to collect steady passive income.