Great dividend stocks are about a lot more than the yield. A very high yield can actually be a sign of impending problems and point to risk. Many investors love dividend stocks, but they're even more important for retirees or others who rely on passive income, and dividend safety is a premier feature of great dividend stocks for these investors.
Other features you want to look for in a quality dividend stock are company growth, dividend growth, and management's commitment to shareholder value. Realty Income (O -0.17%) is a standout dividend stock because it offers all of this and more.
The monthly dividend company
One of the best ways to buy dividend stocks is to invest in real estate investment trusts, or REITs. The REIT is a structure for certain kinds of real estate owners that requires them to pay 90% of earnings as dividends, and REITs are typically low-growth, high-yielding stocks. Realty Income is unique even among REITs as one of the only ones that pays a monthly dividend.
It owns more than 13,000 properties globally with a focus on large, quality chain-store tenants that sell essentials and are good for their rent money. Grocery and convenience stores are 20% of its portfolio, with another 13% in dollar stores and drug stores. Its top tenants are Walgreens and Dollar General, each accounting for 3.9% of the portfolio. Portfolio occupancy is at 98.8%, around where it usually is.
Realty Income acquired another REIT in 2021 that almost doubled its previous property count and diversified its industry. It also recently announced the acquisition of Spirit Realty, which will amplify its diversification. Management said it will also see a 2.5% accretion to its annualized adjusted funds from operations (AFFO). These acquisitions bolster its status as a top REIT by size and add scale to its operations, which results in overall improved performance. What's more, it has the funds at competitive rates to continue buying quality properties and making acquisitions that enhance its position.
It has used the high-interest-rate environment to its advantage, raising capital to buy new properties and shore up its cash reserves for new purchases while benefiting from a 100 basis point investment spread. It invested $2 billion in new properties with another $4.5 billion in liquidity for future growth, and it raised its full-year 2023 liquidity position to $9 billion.
Based on its performance so far this year, including a year-over-year increase in AFFO from $0.98 to $1.04 in the third quarter, Realty Income also raised the lower end of its full-year outlook for AFFO from $3.96 to $3.98.
Pressured by high interest rates
Realty Income stock is down 15% this year, while the S&P 500 is up 19%. Investors are staying away from real estate stocks while the industry has gotten crushed by high interest rates, but they would be well served to zoom out and see the bigger picture. Realty income is thriving, even under these conditions, and it hasn't missed a monthly dividend payout in the past eight years. Even more, it continues to raise its dividend despite the circumstances, increasing it for the past 104 quarters.
Since dividend yield moves inversely with stock price, Realty Income's stock yields 5.2% at the current price. It typically yields closer to 4.5%, which itself is quite high. More than that, though, Realty Income's dividend is secure and growing. The company is taking action to grow, diversify, and stay strong, with a solid commitment to shareholder value. Realty Income stock is a buy for dividend investors and for any investor looking for a top REIT to add to a well-rounded portfolio.
