Taken in isolation, Realty Income's (O 0.85%) growth from quarter to quarter isn't very inspiring. On average, the real estate investment trust (REIT) typically grows at a mid-single-digit rate annual rate. However, those small increases add up over time to produce some pretty magical returns.

Here's why investors should take a closer look at this passive income machine, even if they don't care very much about collecting dividend payments.

Adding up over time

Realty Income has a simple mission: "We invest in people and places to deliver dependable monthly dividends that increase over time." The REIT has delivered on that objective over the years. It has paid 628 consecutive monthly dividends over its 53-year operating history. Meanwhile, it has increased its dividend payment 117 times since its public listing in 1994, including for the last 100 consecutive quarters. Realty Income has grown its dividend payment at a 4.4% compound annual rate overall.

That growth rate might not sound like much, but it adds up over time. Here's a look at what a hypothetical investor who purchased shares a decade ago would have earned on that investment:

A chart showing dividend income and capital appreciation for Realty Income over a decade.

Data source: Realty Income. 

As that chart shows, a hypothetical investor who bought shares of Realty Income a decade ago would have done quite well, thanks to the REIT's steady dividend growth. They would have generated enough cumulative dividend income to pay back 82% of their original investment. On top of that, the share price has appreciated about 66% as the company steadily increased its earnings and dividend. Add those two up, and the total return is nearly 150%. That's the magic of a steadily growing dividend.

Realty Income's cumulative dividend increases have totaled 70% over the past decade. The dividend yield on the initial investment has increased from about 5% at purchase to 8.5%. That's a very strong base for future returns. 

The magic should continue

Realty Income is in an excellent position to continue steadily growing its income and dividend in the coming years. Two factors drive that view.

The first growth driver is the REIT's existing commercial real estate portfolio. Realty Income owns a diversified portfolio of operationally critical real estate (think warehouses, grocery stores, and restaurants) that it leases to high-quality tenants. It signs long-term triple net leases (NNN) that make tenants responsible for covering building insurance, maintenance, and real estate taxes. They also feature annual rental escalation clauses. Realty Income's existing property portfolio should thus grow its net operating income at a low-single-digit yearly rate.

The other driving factor is acquisitions. Realty Income is almost always buying more income-producing real estate. Since 2010, it has made $32.9 billion of acquisitions, including purchasing single properties and acquiring other REITs. 

Realty Income has been able to steadily acquire additional properties by maintaining a top-notch financial portfolio. It has a reasonably conservative dividend payout ratio, enabling it to retain cash to fund new investments. It also has one of the highest credit ratings in the REIT sector, providing nearly unparalleled access to capital to finance acquisitions. That strong financial profile should enable Realty Income to continue steadily acquiring income-producing real estate. Add in rent growth, and Realty Income should be able to continue increasing its dividend in the coming years.

More than just an income stream

Realty Income stands out as an excellent passive-income stock. While the main draw is its 4.7%-yielding monthly dividend, its steady growth has enabled it to produce attractive total returns. The REIT's consistent dividend increases add up over time, allowing investors to collect more income the longer they own shares while also benefiting from attractive price appreciation. Investors will want to take a closer look at what has been a phenomenal passive-income producer over the years.