A couple of weeks ago, I told you about one of my absolute favorite dividend payers on the market.

I talked about how we are earning a 7.8% yield-on-cost over at High-Yield Investing – not to mention some pretty nice capital gains.

All from one of the most attractive portfolios of real estate assets you’re likely to ever come across.

I’m talking about Realty Income (NYSE: O).

This real estate investment trust (REIT) has paid 637 consecutive monthly dividends. Right now, it yields about 6%. Payouts have risen for 103 consecutive quarters, climbing an average of 4.4% annually over the past three decades.

Details Behind The Latest Deal

Realty Income made its name as “the Monthly Dividend Company” by primarily owning recession-resistant retail properties like grocery stores, pharmacies, and gas stations. But in my previous piece, I briefly mentioned one of O’s latest deals involving a calculated $1 billion wager on the future of the Las Vegas strip.

As I mentioned, it wasn’t the first deal involving casinos – and I don’t think it’ll be the last, either. And after seeing the numbers, it’s honestly not that much of a gamble. So let’s dive into the details to see what makes this deal so interesting and why there could be more down the line.

The deal in question involves the Bellagio hotel and resort on the Las Vegas strip.

When people envision the glitz and glamour of Las Vegas, Bellagio is often the first image that springs to mind. The luxurious 77-acre, 4000-room resort has every amenity under the sun, from private poolside cabanas to lush botanical gardens. It is all set against the backdrop of a 9-acre lake (modeled after Italy’s Lake Como) with a dazzling fountain ballet show. You may have seen it in films like Ocean’s Eleven.

_{Image credit: Eric Kilby/Wikimedia Commons, CC BY-SA 2.0}

Blackstone’s real estate arm paid $4.25 billion for this prime real estate back in 2019. Today, the property’s valuation easily exceeds $5 billion – and Realty Income is a brand-new part owner. It just acquired a 22% stake, financed by $300 million in common stock and a $650 million interest-bearing preferred equity investment.

Realty Income isn’t running the blackjack pits or assuming other operations. That responsibility remains with the manager, MGM. Instead, it will simply act as a landlord – collecting some heavy rent checks each month.

One Of My Favorite REITs Just Keeps Getting Better

On the surface, MGM isn’t your average Realty Income tenant. O typically rents to retailers, grocers, convenience stores, and fast-food outlets like Circle-K, Taco Bell, Dollar General, and Kroger. But they do share one element in common: a triple-net lease structure. That means MGM is responsible for all property maintenance, insurance, and taxes.

In a presentation, Realty Income projected a return of 7.0% on its common stock investment and a fixed yield of 8.1% on its preferred investment. That’s good for a blended return of 7.75% — better than the cap rate on many real estate acquisitions these days. Better still, the lease has an automatic 2.0% rent escalator for the next six years, possibly more depending on inflation levels.

Some simple math says this investment will initially generate about $74 million in annual income ($950 million * 7.75%). Even for one of the nation’s largest REITs, that’s a needle-moving transaction.

As I mentioned, this isn’t Realty Income’s first foray into the gaming sector. But management apparently wanted more of a good thing. And it’s easy to see why…

Las Vegas has welcomed 41 million visitors over the past 12 months, who have left behind $45 billion in spending. That’s about 112,000 customers per day… well above pre-Covid levels and then some. New concert and entertainment venues will continue to drive those totals upward, as will the recent (and ongoing) relocation of pro hockey, football, and baseball sports franchises.

As one of the most iconic properties on the Strip, the Bellagio will certainly capture its share. The property has generated a TTM net operating income (NOI) of $735 million, enough to cover its rental obligations several times over.

Action to Take

Realty Income likes to partner with reliable, best-in-class tenants. MGM is a leader in this field, with a portfolio of 31 gaming destinations and a $40 billion enterprise value. While unconventional, this Bellagio stake looks to be an excellent use of capital for an organization that continues to wield its advantages of size and scale.

Realty Income has also tipped its hand to a new tactic. Amid tighter capital and restrained bank lending, I expect this deep-pocketed company to make additional direct credit (preferred share) investments to borrowers. You can’t argue with the 8% payout.

In the meantime, this global real estate empire of 13,000 properties has powered 638 consecutive monthly distributions — hiking dividends 121 times over the past 30 years. Income investors should strongly consider holding it in their portfolio.

P.S. Realty Income is one of my favorite Monthly Money Makers…

These are 12 monthly dividend 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. Go here to learn more now.