A blue chip stock can be a kind of North Star for investors, a beckoning beacon among the thousands of other shining stars – and potential black holes -- that populate the constellation of publicly traded stocks.
And when that blue chip is an accomplished dividend payer, it becomes an even more attractive option for those who are, or soon will be, using their nest eggs as they transition from their working lives to their golden years.
And when it comes to choosing a blue chip dividend stock, you may serve yourself well by turning to Realty Income (O -0.17%), one of America's best-known real estate investment trusts (REITs).
A diversified portfolio of reliable rentpayers
Blue chip stocks are shares of companies that have long records of stability and reliability, good reputations, and viable business models that are managed by experienced hands that know how to respond to change while staying true to what works.
Realty Income may not have the name recognition of other blue-chippers, but it certainly has the bona fides. The San Diego-based retail REIT brands itself as "The Monthly Dividend Company" and has delivered 637 consecutive monthly payouts while building its income-producing portfolio to more than 13,000 properties in all 50 states and Puerto Rico, as well as a growing presence in Italy, Spain, the United Kingdom, and Ireland.
Its catalog of tenants is heavily populated by reliable rent payers in non-discretionary, recession-resistant businesses such as convenience, grocery, pharmacy, and big-box store operators. For instance, Walgreens and Dollar General top the list by rent roll at 3.8% each.
It can be hard to substantially grow such a large portfolio, but Realty Income has the fortress balance sheet and credit to make billion-dollar acquisitions of hundreds of properties at a time in its traditional retail space and now in gambling. Last year, it inked a $1.7 billion acquisition of the Encore Boston Harbor casino resort, and in 2023, it shelled out $950 million for a major stake in the Bellagio in Las Vegas.
This REIT has the chops to grow their lane while staying in it
While this might look like a company going out of its comfort zone, the accomplished managers of Realty Income have a record that lends itself to trusting this trust to continue to deliver reliable growth and income alike.
The chart above shows how much a $1,000 investment in Realty Income made 10 years ago would be worth today, assuming you reinvested all the dividends you received. And if you didn't. In that case, you would have gotten hundreds of dollars in income over that time, and would still have about $1,400 in Realty Income stock. Not too bad.
REITs are required by tax law to pay out at least 90% of their taxable income as dividends each year, and this one is riding a streak of 103 consecutive quarterly increases. Those hikes, however, tend to be minuscule. For instance, the most recent one was a bump of $0.0005 per share which made the monthly payout $0.2560 per share.
It's easy to imagine that keeping the streak going, and certainly avoiding any kind of dividend cut, is a priority to the C-suite of this REIT, given its record and market reputation.
Realty Income's share price has been beaten down of late. It's trading more than 27% off its early 2022 high at about $54, which has pushed its yield up to about 5.7%.
That pricing, combined with the portfolio and record that power this outperformer's popularity, makes it a solid choice for seekers of blue chip stability with a nice side of cash flow.
I've held shares for several years and consider it one of the North Stars of my own retirement strategy (which now is here), and at today's beaten-down price, I will add more soon. And when I do, I'll just relax and keep letting those blue chips stack.
