One Of The Best Dividend Payers On The Entire Market
All we had to do was buy it and wait. That’s it.
One of the biggest winners in my High-Yield Investing newsletter was built for a single purpose: to throw off a rising stream of tax-advantaged rental income.
It’s done that and more. We’re earning a 7.8% yield on our original purchase price. But we’re also sitting on some fantastic capital gains to boot. It just goes to prove what I’ve been saying for years… Successful dividend investing does not have to be complicated. The high yields are out there if you know where to look.
Today, I want to introduce you to the company and explain why it’s been such a great performer for us. And why, if history is any guide, it should continue producing compounding returns for us for many years.
One Of The Best Dividend Payers Around…
Realty Income (NYSE: O) can trace its origins back to 1969 when its founders purchased their first property (leased to a Taco Bell). By the time it went public in 1994, the portfolio had increased to 630 properties worth $450 million.
A decade later, the portfolio had doubled in size to 1,200 properties. And today, this coast-to-coast empire spans more than 13,000 properties.
Most of the firm’s $60 billion portfolio is invested in freestanding retail properties in prime, high-traffic spots. Reliable tenants like Dollar General, Walgreens, 7-Eleven, FedEx, and Wal-Mart dutifully pay their rent on time each month.
There have been some harsh commercial real estate downturns over the past 50-plus years. But Realty Income has been a steady all-weather performer. Even during the financial crash and recession of 2008-2009, occupancy rates never dipped below 96%.
Today, they stand at close to 99%, with minimal deviation from quarter to quarter. Part of that stability comes from the deep tenant base. Realty Income’s renters represent 50 diverse industries ranging from apparel to grocery stores, and most are resistant to e-commerce threats.
Second, the properties are typically rented under triple-net leases. That means the tenants (not the landlord) are responsible for property taxes, insurance, and maintenance expenses. That helps minimize the impact of rising upkeep costs and leads to superior margins. Most leases have built-in clauses that stipulate automatic 1% to 2% annual rent hikes.
Finally, most of the company’s renters sign long-term leases that range from 10 to 25 years. Compare that with other real estate owners: Hoteliers rent their rooms by night; storage facilities lease space one month at a time; and apartment complexes usually lock up renters for 12 months.
Source: Realty Income Investor Presentation
Getting Into The Casino (Landlord) Business
In recent years, Realty Income has diversified its portfolio by expanding internationally and investing in new subsectors of commercial real estate — like casinos.
Last year, it took ownership of the Encore Boston Harbor Resort through a $1.7 billion sale-leaseback deal with Wynn Resorts. Incidentally, the annual rent on that property is $100 million and rising.
And Realty Income just recently acquired a 22% stake in the iconic Bellagio hotel and resort on the Las Vegas strip.
The REIT isn’t assuming other operations, mind you. That responsibility remains with the manager, MGM. Instead, it will simply act as a landlord – collecting some heavy rent checks each month.
Financed by $300 million in common stock and a $650 million interest-bearing preferred equity investment, this trophy asset will throw off a projected 7.75% blended return. That’s better than the cap rate on many real estate acquisitions. Better still, the lease has an automatic 2.0% rent escalator for the next six years, possibly more depending on inflation.
Before this transaction, gaming only comprised 2.7% of Realty Income’s portfolio. And while a deal of this size still moves the needle, don’t be surprised to see more gaming sector deals to come.
The Dividend Aristocrat That Keeps On Giving…
When Realty Income debuted on the New York Stock Exchange in 1994, the company generated approximately $40 million in funds from operations (FFO) annually. Now, it’s churning out that much every few weeks.
Because the company is a real estate investment trust (REIT), every penny of that profit is exempt from the tax bite of Uncle Sam. That leaves more cash on the table to be divvied up among investors. And distributions are paid out monthly, so your interest compounds even faster.
Realty Income has reliably dished out 637 consecutive monthly dividends. Right now, investors are getting $3.07 per year — which puts the yield at about 5.7%.
Payouts have been rising steadily every 90 days, with 103 consecutive quarterly dividend increases. On average, distributions have been climbing 4.4% annually over the past three decades.
Action to Take
This Dividend Aristocrat deserves consideration for just about any portfolio.
Not one company in a thousand has paid dependable monthly income for as long as Realty Income.
Bottom line: It is one of the best and most reliable dividend stocks around.
We’re up by triple digits on our position in High-Yield Investing. The ride hasn’t always been smooth. But every significant drop proved to be a great long-term opportunity.
That includes this most recent pullback. At a 5.7% yield, we haven’t seen it pay this much since the pandemic. If history is any guide, the dividend will continue rising for many years to come.
P.S. O is one of my favorite income picks, period. But as a special bonus, it’s one of a handful of stocks that pay monthly dividends…
My latest report reveals 12 monthly payers you can build your income-generating portfolio around. Each has high yields and a track record of paying more and more with each passing year — and in any market.