Passive income is a great way to generate extra income with little effort. After you spend all day working, passive income is a way to make money work for you when you sleep.
Investing in reliable dividend stocks is a great way to generate passive income. Dividend stocks provide you with payments regularly, and companies that pay dividends tend to have high-quality businesses that rake in cash consistently.
There's one company that will even cut you a monthly check like clockwork: Realty Income (O 0.24%). Here's what you should know about this reliable income stock.
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Realty Income is a safe cash flow machine
Realty Income is a real estate investment trust (REIT) that acquires and manages commercial properties using long-term net lease agreements. The company manages over 11,000 properties across the U.S., U.K., and Spain. Some of its clients include familiar names like CVS Pharmacy, Walgreens, Dollar General, and Dollar Tree.
Realty Income uses a triple-net lease with its clients, meaning the customer is responsible for all taxes, maintenance, and insurance on the properties. This is common in commercial real estate as it lowers rents for the tenants who assume the cost of upkeep, and it provides Realty Income with safe, steady income.
Realty Income has been in the business for 53 years and generates strong cash flows, making it attractive to income investors looking for consistent returns. In the past 10 years, Realty Income has increased its revenue and net income at a compound annual growth rate (CAGR) of 20% and 13%, respectively. Funds from operations, which gives you a better picture of how much money a REIT is making, posted a 21% CAGR during this time, and as a result, dividends increased at 5% annually.
Realty Income's business risk
Realty Income isn't without risks. The company concentrates on retail, with 84% of its properties categorized in that niche. If retail clients see a slowdown in business or rents rise so quickly that they cannot afford to pay their leases, it could be detrimental to Realty Income's cash flows.
One way Realty Income looks to mitigate risk is by diversifying its clients. It diversifies its industry exposure, with its highest exposure being in grocery stores, which make up 10.5% of its annualized rent collections. Another 9.2% of its annual rent comes from convenience stores and 7.2% from dollar stores. Walgreens, its biggest client, accounts for about 4.1% of its annualized rent.
You would need to own this much stock to make $100 per month
Realty Income's dividend yields 4.18% annually, so 410 shares of Realty Income at Monday's closing price of $70 would cost you about $28,700 and would make you a cool $100 per month.
Be careful, though; you don't want to put too many eggs in one basket -- or in any stock, including Realty Income. First and foremost, ensure you have a diversified portfolio of 25 stocks or more and only invest a small percentage of your total account in a single stock. Even a smaller initial investment of $2,870 in Realty Income would net you $10 per month and put you on the right track for long-term investment success.
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A passive income all-star you can trust
Realty Income right now is benefitting from comparisons to what was a rough 2021. Through the first six months of 2022, the company's total revenue is up 79% year over year and net income has increased 92%.
The company has a safe dividend and a business that can do well if inflation sticks around, and it has increased its dividend annually for 25 years in a row, affirming its status as a Dividend Aristocrat. If you're an income investor looking for a safe stock that pays you monthly, you can't go wrong with Realty Income.
