My top financial goal is to build a portfolio of passive income-producing investments that can completely offset my expenses. That would buy back my time, so I can work on things I enjoy instead of focusing on making money.
While I've invested in a diversified portfolio of passive income-producing assets, one dividend stock I can't get enough of these days is Realty Income (O -0.11%). I've purchased a few shares almost every month this year as I work toward building a sizable position in this elite dividend stock.
One of the best in the business
Realty Income lives up to its name. The company invests in income-producing commercial real estate to deliver dependable monthly dividends to its investors. The real estate investment trust (REIT) has made 626 consecutive monthly dividend payments throughout its 53-year history, earning it the moniker of The Monthly Dividend Company. The company currently offers a dividend yield of 4.4%. That's above the REIT sector's 3.5% average and the S&P 500's 1.5% dividend yield.
The company does more than pay a durable dividend. Realty Income has steadily increased its payment. It has given its investors a raise 116 times since its public listing in 1994, including in each of the last 99 straight quarters. That's over 25 years of consistent dividend growth, putting it in an elite category as a Dividend Aristocrat. It's one of 65 companies earning that distinction and one of only three REITs. Realty Income has grown its dividend at a solid 4.4% compound annual rate.
A high yield without the risk
Higher-yielding dividends are often at greater risk for a reduction than smaller payouts. However, that's not a concern for Realty Income.
The REIT owns a durable real estate portfolio that generates steady rental income. It currently holds nearly 11,500 freestanding properties leased to high-quality tenants in resilient industries. Realty Income utilizes long-term net leases, making the tenant responsible for the variable costs of building insurance, maintenance, and real estate taxes. Its leases also feature annual rent escalation clauses. These factors enable Realty Income to collect a steadily rising rental income stream.
Meanwhile, the company pays out a conservative portion of that income via dividends. Its dividend payout ratio was 76.5% in the second quarter, a reasonable level for a REIT. That gives it a big safety net while retaining more cash for reinvestment.
Finally, Realty Income has one of the strongest balance sheets in the REIT sector. It's one of only a handful of REITs with A-rated credit, which it backs with a low leverage ratio. That enables it to borrow money at more favorable rates than other companies, a huge advantage in today's rising interest rate environment.
Plenty of room to continue growing
While Realty Income's rock-solid high-yielding monthly dividend is a big enough draw, the other reason why I can't seem to get enough shares is that the company's income stream should keep rising in the future. Thanks to its strong financial profile, Realty Income has the flexibility to continue expanding its portfolio of income-producing properties.
The company primarily makes sales-leaseback transactions by acquiring properties directly from the operator. There's an estimated $12 trillion of owner-occupied commercial real estate in the REIT's core North American and European markets, providing it with a vast opportunity set to continue expanding. It expects to acquire more than $6 billion of real estate this year. That should enable it to continue steadily increasing its dividend.
An outstanding passive income stock
Realty Income has been one of the top passive income stocks over the years. The REIT has paid an attractive monthly dividend that it has steadily increased. Given its strong financial profile and vast opportunity set, it should have no problem continuing that trend. That ability to collect a lucrative and growing income stream is why I can't seem to get enough Realty Income in my portfolio and expect to continue buying shares each month when I can.
