Dividend stocks are appealing for a lot of reasons. For most investors, the first reason is that they provide a steady source of income at a higher rate than is typically available from savings instruments and bonds.
They're also typically regarded as reliable and less volatile than growth stocks and, despite their relative staidness, they can be strong long-term performers, providing both income and share growth.
That's because it takes a successful business to provide a consistent, ideally growing, source of passive income year after year. If that appeals to you, Realty Income (O -0.17%) may be the best dividend stock you can find.
More than a half-century of uninterrupted dividend payments
Realty Income is a real estate investment trust (REIT) that owns and manages freestanding commercial properties leased to high-quality tenants under long-term net lease agreements. Net lease means the tenant is responsible for the taxes, insurance, and maintenance of the properties, simplifying the business and cash flow to the property owner -- and flow it does.
As a REIT, Realty Income must pay out at least 90% of its taxable income to shareholders in the form of dividends, and this San Diego-based operation has built an enviable record in that regard. Since its founding in 1969, it's paid 638 straight monthly dividends.
And since going public in 1994, this retail REIT has increased the dividend 121 times, building a streak of annual increases that's now reached 30 years. That's helped the company generate an impressive total return that's triple the S&P 500's return in that time, as this chart shows:
Data source: YCharts
A big REIT with a broad reach
Realty Income is one of the largest REITs on the market and it just keeps growing. Its portfolio now numbers more than 13,100 retail properties with more than 1,300 different clients in 85 industries. Most are in the U.S. (including all 50 states and Puerto Rico) with a growing presence in the U.K., Ireland, Spain, and Italy.
That diversity helps mitigate risk, as does the strength of its client base. Many are investment-grade operators themselves and the company says the majority are retail and industrial clients that have a service, non-discretionary, and/or low-price-point component to their business that helps them weather changing economies and the challenges of e-commerce.
Currently, convenience and grocery stores combine for about 20% of the annualized rent while the top two clients are Dollar General and Walgreens Boots Alliance, each accounting for 3.8% of the rent roll. By region, the U.K. accounts for 10.5% of the business, while Texas is close behind at 10.1%.
The advantages of monthly payouts
"Advantage" can be in the eye of the beholder, but monthly payouts do provide a couple of differences that could tip the balance here when compared with quarterly income stocks.
Besides the more frequent income that syncs nicely with Social Security and the like, the magic of compounding can be a bit stronger, too.
Realty Income also offers a direct stock purchase and dividend reinvestment plan (DRIP) to make it that much easier.
A nice yield and confidence going forward
Realty Income stock is currently yielding about 5.2% at a share price of about $57. Analysts give it an average target price of $68.89, pointing to continued upside for this big REIT.
Acquisitions such as the company's move into casinos through the recent $1.7 billion acquisition of Encore Boston Harbor from Wynn Resorts and some other large retail portfolios should keep income growing, too.
For investors, including myself, who focus on dividend stocks for both their passive income and share price stability and growth, Realty Income just continues to merit strong consideration as a long-term holding.
