While the market has recovered sharply since the March lows, it's important for investors to realize that we're not out of the woods just yet. COVID-19 cases are spiking in several key areas of the United States, and it's entirely possible that further measures will need to be taken to get the spread of the virus under control. And depending on what happens, we could certainly see the stock market take another dive.

If you're worried about the possibility of another market crash while the coronavirus outbreak continues, it can be a smart idea to focus on businesses that are designed to thrive no matter what the economy is doing (or how long the pandemic lasts). One that should be right at the top of your crash-resistant watch list is Realty Income (O -0.55%), a real estate investment trust, or REIT, focused on single-tenant properties.

Woman shopping in a grocery store.

Image source: Getty Images.

What does Realty Income do?

Realty Income focuses on single-tenant, net-leased properties. In a nutshell, this means that the company owns freestanding buildings, and their tenants sign long-term leases that require them to cover property taxes, insurance, and maintenance expenses. Most of the company's 6,500 properties are occupied by retail tenants, but there are also significant concentrations of office and industrial tenants as well.

While the word "retail" can be scary to investors these days, it's important to know a few things:

  • Most of Realty Income's tenants operate recession-resistant businesses, such as stores that sell items people need and discount-focused businesses, which tend to hold up well in tough economies.
  • Most of Realty Income's tenants operate businesses that aren't easily disrupted by e-commerce. The top four tenant industries in Realty Income's portfolio are convenience stores (including gas stations), drug stores, dollar stores, and grocery stores – none of which are easily replicated online.
  • Most of Realty Income's tenants are "essential" retail businesses, and therefore have been open (and paying rent) throughout the pandemic. There are some exceptions as we'll see in the next section, but the point is that Realty Income is in better shape than most other retail REITs.

How has COVID-19 affected Realty Income's business?

To be clear, Realty Income hasn't exactly been immune to the COVID-19 pandemic. Just over 20% of the company's rental income comes from movie theaters, health and fitness businesses, restaurants, and auto service centers. As you might expect, most of these businesses were forced to close due to the pandemic, and many haven't paid rent.

However, Realty Income's high concentration of essential businesses and investment-grade tenants has helped keep rent collection numbers high. For June, Realty Income collected about 86% of its contractual rent, which is far better than most other retail-focused REITs. And it's worth noting that much of the other 14% of the rental income is likely to be collected eventually – it isn't exactly lost money.

The proof is in the numbers

Sure, this all sounds good in principle, but the numbers are the proof of the long-term power of Realty Income's business model. Consider the following:

  • As of July, Realty Income will have made 600 consecutive monthly dividend payments. That's a 50-year streak of never missing a distribution.
  • Realty Income has increased its dividend for 91 quarters in a row by an average of 4.5% annually and hasn't cut its dividend the entire time it's been listed on the NYSE. This includes the Great Recession and the COVID-19 pandemic.
  • Because of the long-term appreciation of its properties as well as its income, Realty Income has generated a 14.6% annualized total return since the 1994 NYSE listing. This means that an investor who put $10,000 into Realty Income stock 26 years ago would have more than $345,000 today, assuming dividend reinvestment.

To put it mildly, it's tough to argue with those statistics. Realty Income is built for consistent growth and income, and it has the results to prove it.

There's no such thing as crash-proof, but...

To be perfectly clear, Realty Income is not a crash-proof stock. There's no such thing. If the stock market crashes again, it's entirely possible that Realty Income's stock price could go down.

And that's OK. The point isn't necessarily to find stocks whose share prices won't take a hit during turbulent markets – it's to find businesses that should hold up just fine and emerge relatively unscathed on the other side. So, while Realty Income won't completely escape the volatility that would accompany a market crash, there's no reason to believe the stock won't provide worry-free, rising income and excellent total returns for decades to come, no matter what the stock market or U.S. economy is doing.