Many investors consider real estate investment trusts, or REITs, to be generally boring investments. REITs don't tend to have rapidly growing businesses, aren't particularly innovative companies in most cases, and are designed to produce a higher-than-average level of income for investors, so it isn't surprising that many feel this way.
While many REITs' businesses can indeed meet a reasonable definition of "boring," that doesn't make them bad investments -- quite the opposite. Realty Income (O 1.46%) is an especially interesting example of a REIT that is designed to be boring in all the best ways, and has worked out wonderfully for investors over the years.
Realty Income's business is boring by design
Realty Income owns about 11,400 properties in the U.S. and Europe. It specializes in single-tenant properties, with the bulk of its tenants in the retail industry.
However, this isn't just another retail stock. Most of Realty Income's tenants are recession resistant, not vulnerable to e-commerce headwinds, or both. Walgreens, Dollar General, and FedEx are just a few examples of the company's largest tenants.
In addition to retail, Realty Income owns a substantial amount of industrial real estate, as well as some agricultural properties. Plus, the company recently entered the gaming real estate space with the high-profile acquisition of Encore Boston Harbor.
In addition, Realty Income uses a net lease structure that adds to the stability. A net lease is one where the tenant commits to paying property taxes, insurance, and most maintenance expenses -- essentially covering all the variable expenses of owning a property. Plus, net leases typically have long initial terms (well over 10 years), with annual rent increases built right in. All Realty Income has to do is acquire a property with a high-quality tenant in place and enjoy decades of predictably growing income.
The stock's performance is the least boring thing about it
Realty Income has been around since 1969 and first listed on the NYSE in 1994. Since its listing, the company has delivered 15.1% annualized total returns for investors, a fantastic record of performance to maintain for nearly three decades. To put this into perspective, a $10,000 investment at the time of the company's NYSE listing in 1994 (at which point it was already a well-established business) would be worth about $456,000 today, assuming you reinvested all dividends along the way.
For income seekers, Realty Income has a dividend yield of a little more than 5%, paid in monthly installments. (Fun fact: Realty Income has a trademark on the phrase "The Monthly Dividend Company.") It has made 627 consecutive monthly payments to shareholders and has increased the payout for 100 consecutive quarters.
An important lesson to learn
Realty Income is a great example of a very important investing lesson to learn: Whether a business is exciting doesn't have as much to do with its investment potential as you might think. Some of the most exciting, innovative companies in the world end up producing terrible returns for shareholders, while Realty Income's simple, predictable business model has produced life-changing wealth for long-term investors.
