Realty Income (O 0.52%) has done a phenomenal job generating passive income for its investors over the years. The real estate investment trust (REIT) has paid out over $9.3 billion in dividends throughout its history, steadily increasing the per-share payment. These dividends have really added up for investors who have held shares of the REIT over the long term.

Turning a small investment into a big-time income stream

Realty Income has been paying dividends for more than 50 years, including 27 as a publicly traded company. The REIT has increased its dividend payment 115 times since coming public in 1994, with the last 98 coming in consecutive quarters. Overall, it has given investors a raise every year since going public, putting it in the elite class of Dividend Aristocrats. 

To put this dividend growth into perspective, we'll consider a hypothetical investment of 100 shares made a decade ago, which would have cost about $3,500. Given Realty Income's stock price and dividend payment at the time, that initial investment would have had a dividend yield of around 5%. That implies investors would have generated about $175 of dividend income in that first year.

That annual income stream would have steadily grown over the ensuing decade, with the REIT increasing its payout by about 70% during that time frame. At the company's current dividend rate, that initial investment would generate nearly $300 in annual dividend income. That implies a yield on the initial cost of around 8.5%.

Meanwhile, the cumulative dividend income over the past decade would be around $2,700. That implies investors have already made back roughly 77% of their initial investment through dividends alone. In addition to that, they would have benefited from some meaningful stock price appreciation. Shares of Realty Income have almost doubled over the past decade. That has pushed the value of the original investment up to around $7,000 at the recent stock price.

And all of these calculations don't include the compounding effects of a dividend reinvestment plan (DRIP), which takes your dividend income and uses it to buy more shares of the stock. That, in turn, boosts your dividend amount from the additional shares you're buying. 

The key to Realty Income's dividend growth success

Realty Income focuses on paying a monthly dividend that it regularly increases. Given that emphasis on providing investors with a dependable and growing income stream, the REIT takes a conservative approach.

That starts with the property types it targets. The REIT seeks diversified sources of lease revenue by client, industry, geography, and property type. It focuses on owning freestanding properties, and signing net leases with high-quality tenants operating in durable sectors. That lease structure makes the tenant responsible for maintenance, building insurance, and real estate taxes, enabling Realty Income to collect very stable rental income. Meanwhile, the REIT's diversified approach and focus on quality and durability help reduce risk, improving the sustainability of its rental income. 

Another key aspect of the REIT's strategy is its conservative financial profile. Realty Income has paid out an average of around 75% of its adjusted funds from operations in 2022. That reasonable payout ratio gives it a cushion to maintain its dividend during tough times while enabling it to retain some cash for investment purposes. Meanwhile, it also has one of the highest credit ratings in the REIT sector. That increases its access to lower-cost funding. These features give it lots of financial flexibility to continue acquiring income-producing commercial real estate. 

Acquisitions have been a big growth driver for Realty Income over the years. It has made $29.4 billion of real estate investments since 2010. That includes a couple of large-scale deals -- American Realty Capital Trust in 2013 and VEREIT in 2021 -- and a steady stream of sale-leaseback transactions to acquire properties directly from owner-operators. The REIT expects to purchase more than $5 billion of properties in 2022 alone, which should enable it to continue increasing its dividend. 

A great long-term investment for income seekers

Realty Income has done a phenomenal job growing its dividend over the years. That has enabled the REIT to turn a relatively small initial investment into a much larger income stream over time. Given its conservative approach, it should be able to continue growing its dividend in the years to come. That makes it an ideal stock for income-focused investors with a long time horizon.