Realty Income (O -0.17%) has been a phenomenal dividend stock over the decades. The real estate investment trust (REIT) recently declared its 639th consecutive monthly dividend.
Since the company went public in 1994, every single one of its payments has either matched the prior level or risen. That's a remarkable record of consistency and durability, given the cyclical nature of the real estate industry.
The company recently declared its latest dividend increase. It marks the 122nd raise the REIT has given investors since its public market listing. That also extended its streak of quarterly dividend increases to 104.
Image source: Realty Income.
Realty Income's streak of dividend growth likely won't end anytime soon. Add in its attractive dividend yield (currently 5.6%), and it's an excellent option for investors seeking a durable and steadily rising passive income stream from real estate.
Built on an extremely strong foundation
Realty Income has constructed a diversified portfolio of income-producing commercial real estate. The company currently owns over 13,100 properties primarily secured by long-term net leases with creditworthy tenants. That lease structure protects against inflating costs because tenants cover the building's maintenance, real estate taxes, and insurance.
The REIT primarily owns properties resilient to recessions and the pressures of e-commerce, like convenience stores, grocery stores, dollar stores, home improvement shops, and pharmacies. It also has a sizable industrial portfolio and a couple of high-quality gaming properties.
The company's high-quality and diversified portfolio generates very stable rental income. It typically pays a relatively conservative percentage of its stable income to investors in dividends.
Its dividend payout ratio was 76.5% of its adjusted funds from operations (FFO) in the second quarter. That provides the company with a nice cushion while allowing it to retain some cash to help fund new property investments.
Finally, Realty Income has an elite balance sheet. It's one of only a handful of REITs with bond ratings at the "A" level. It backs that top-tier credit rating with a low leverage ratio and primarily long-term, fixed-rate debt. That gives it lots of financial flexibility to make acquisitions.
A long growth runway ahead
Realty Income has a massive opportunity to continue acquiring income-producing real estate. The company estimates that there's $12 trillion of commercial real estate across the U.S. and Europe suitable for the net lease structure.
Large publicly traded corporations (Realty Income's target tenants) own about $2.1 trillion of this real estate. Many of these companies are finding that they don't need to own their real estate. That's leading more of them to execute sale-leaseback transactions with REITs like Realty Income to monetize their real estate.
The company also has steadily expanded into new property verticals over the years to enhance its growth potential:
Image source: Realty Income.
Realty Income recently showcased its expansion capabilities when it made a $950 million investment in Bellagio Las Vegas. It invested $300 million to acquire a 21.9% interest in the iconic gaming property in a joint venture with Blackstone's non-traded REIT, Blackstone Real Estate Income Trust (BREIT).
The REIT also made a $650 million preferred investment in the joint venture, which was its second transaction in its new gaming vertical and its first investment in its new credit investment platform. That new platform could open the door to other property classes not typically suited for the net lease structure.
The REIT's ability to continue expanding its portfolio of income-producing real estate will grow its rental income. That should enable it to maintain its streak of increasing its dividend.
An elite dividend-growth stock
Realty Income continues to steadily increase its attractive dividend. That steady upward trend in the payout seems unlikely to stop anytime soon.
Its combination of a high-quality portfolio and fortress-like financial profile gives it the flexibility to continue expanding its portfolio and dividends. That growing payout makes Realty Income an exceptional stock to buy and hold for a potential lifetime of passive income.
