One of my favorite investing quotes is from the famed economist Paul Samuelson: "Investing should be more like watching paint dry or watching grass grow. If you want excitement, take $800 and go to Las Vegas."
One "boring" stock that holds a core position within my portfolio is the real estate investment trust (REIT) Realty Income (O 0.67%). Let's look at why I plan on owning the stock well into my retirement years, still several decades away.
1. Unmatched size and scale with diversification
I believe it's a good idea to focus on stocks that dominate their industry, especially if you have decades to let your capital compound before retirement, as I do. With nearly 11,000 commercial properties across all 50 U.S. states, Puerto Rico, the U.K., and Spain, Realty Income is massive. In fact, the company is the eighth-largest REIT in the world, with a $37.7 billion market capitalization.
As you could imagine with a REIT of this size, Realty Income is also well diversified both from a geographic and industry perspective. Its top five markets -- Texas, the U.K., California, Illinois, and Florida -- make up less than 39% of the company's annualized base rent (ABR). And the top five tenant industries -- convenience stores, grocery stores, dollar stores, drug stores, and health and fitness -- contributed just over 43% of Realty Income's ABR.
The resilient nature of Realty Income's top industry tenants and geographic diversification allows the company to thrive regardless of the regional economic environment.
2. A winning business model with room to grow
Given Realty Income's size, some investors may conclude that its best days of growth are behind it. However, Realty Income's midpoint estimate for adjusted funds from operations (AFFO) per share of $3.91 this year would represent 9.2% growth over the 2021 midpoint forecast of $3.58. And that is on top of the 5.5% midpoint growth anticipated for 2021. (The company expects to report full-year results today.) These growth figures come in above the 5.1% median AFFO per share growth rate since 1996. Simply put, Realty Income's growth potential remains historically strong.
And that is because of the company's attractive business model.
Realty Income purchases freestanding commercial properties from clients and then leases the properties back to those same clients. That gives those tenants funds to repay debt or reinvest to focus on growing their businesses. Each month, the tenants are responsible for a base rent payment and all the expenses associated with the property they lease, including maintenance, insurance, property taxes, and utilities.
Realty Income's lease terms with its tenants are about 10 years, and 85% of the leases come with built-in rent increases. This gives the company a steady and growing source of rent revenue.
And best of all, Realty Income has plenty of room for future acquisitions to keep expanding its real estate portfolio and ABR. That's because the company's total addressable commercial real estate market in the U.S. and Europe is immense, valued at about $12 trillion combined.
3. The dividend is raised like clockwork
Another of Realty Income's strengths lies in its payout. The company has increased its monthly dividend paid to shareholders for 27 consecutive years, making it a Dividend Aristocrat, or those S&P 500 companies that have increased their payout for 25 years in a row or more.
Better yet, it appears likely that this streak of higher payouts will continue. This argument is supported by Realty Income's 2021 dividend payout ratio of 79.2%, which allows the company to retain the capital necessary to build its real estate portfolio.
A great REIT for income investors
Realty Income's market-beating dividend yield and 4.3% annual dividend growth rate since 1994 mean that income investors can have their cake and eat it too. You get a 4.4% dividend yield from the stock, more than triple the S&P 500's 1.4%. But you also get dividend growth that can outpace inflation in most cases, which will help keep your purchasing power intact. This makes the stock a great buy-and-hold investment for income investors.