Realty Income (O 1.46%) has been a magnificent dividend stock throughout the years. The real estate investment trust (REIT) has increased its payout 119 times since its public listing in 1994. Overall, the company has grown the payout at a 4.4% compound annual rate.
The REIT should have no problem continuing to increase its payout. One driver is its expansion into new property types that will give it additional avenues to grow. The company recently unveiled a strategic alliance to develop indoor vertical farms, providing another new growth driver.
Adding a plentiful growth opportunity
Realty Income has entered into a strategic real estate alliance with Plenty Unlimited. The agreement will support the development of Plenty's indoor vertical farms. Under the deal's terms, Realty Income will acquire and provide development funding for properties that will house Plenty's indoor farms. Realty Income has agreed to invest up to $1 billion into these development opportunities.
The company will initially acquire the land and provide development funding for the first farm of Plenty's indoor vertical farm campus near Richmond, VA. Plenty will lease the property back from Realty Income under a long-term net lease (NNN). Plenty eventually expects the multifarm campus to deliver more than 20 million pounds of produce annually across several different crops.
Realty Income's CEO, Sumit Roy, commented on the deal in the press release. He stated:
Our entry into agriculture technology provides another potential growth opportunity for our company. Over time, we aspire to expand our collaboration with Plenty internationally in markets of mutual interest.
Steadily diversifying to drive new sources of growth
Realty Income is primarily a retail REIT. It owns over 11,700 properties across the U.S. and Europe. The bulk of its portfolio is freestanding, single-tenant retail properties such as grocery stores, convenience stores, and pharmacies. It focuses on properties leased to high-quality tenants resilient to economic downturns and isolated from the pressure of e-commerce. Retail tenants contribute nearly 85% of the company's annualized contractual rent.
However, the REIT has diversified into other property types over the years. It currently gets about 14% of its annual rent from industrial properties like warehouses. Meanwhile, another 1.5% of its rent comes from other properties like offices and agricultural properties like farmland.
Realty Income recently closed the acquisition of its first gaming property. It bought Encore Boston Harbor Resort and Casino from Wynn Resorts (WYNN -1.42%) in a $1.7 billion sale-leaseback transaction. That property will contribute 3.5% of its annual base rent, further diversifying Realty Income's portfolio. Meanwhile, the partnership with Wynn Resorts could lead to future deals between the two companies.
The REIT has also expanded internationally in recent years to further enhance its growth prospects. Realty Income completed its first transaction in May 2019, laying the foundation for its European growth platform. The company has since spent $6.4 billion to acquire 255 properties across the U.K. and Spain.
Realty Income has significantly enhanced its opportunity set by expanding into new property types and geographies. The REIT estimates that there's over $12 trillion of properties suitable for the net-lease structure. That gives it a long runway to continue growing. Meanwhile, with one of the strongest financial profiles in the REIT sector, it has plenty of flexibility to keep growing its portfolio. Those deals should grow its rental income, enabling Realty Income to steadily increase its dividend.
Plenty of room to continue growing
Realty Income continues to showcase its ability to expand into new areas, ensuring it won't run out of growth opportunities anytime soon. Because of that, the REIT should continue growing its portfolio, rental income, and dividend. With its dividend currently yielding an attractive 4.7% and more growth ahead, Realty Income is a magnificent stock for generating passive income.
