Realty Income (O -0.17%) has done a magnificent job paying dividends over the years. The real estate investment trust (REIT) really goes the extra mile.
Whereas most companies are on a quarterly payment cadence, Realty Income pays its dividends monthly. Further, while many companies strive to give their investors a raise once a year, the REIT has increased its payout for the last 105 straight quarters. Last year, it raised its dividend five times and has increased it 123 times since its public market listing in 1994.
Here's a look at how the REIT's growing dividend has benefited its investors over the years.
Adding up to a lot more income
Realty Income has been a wealth creator over the years. Here's a look at the value it has created for a hypothetical investor who bought 1,000 shares a decade ago:
Data source: Realty Income.
As that graphic shows, it would have cost $37,330 to purchase 1,000 shares of the REIT at the end of 2013. While that's a lot of money, it's a lot less than it would have cost to purchase a rental property. The great thing about investing in REITs like Realty Income is that investors can get started without a lot of money. For example, an investor could have bought 100 shares for $3,733 or one for $37.33.
An initial hypothetical purchase of 1,000 shares would have generated $2,186 of annual dividend income during the first year, or about $128.17 each month. That puts the going-in dividend yield at 5.9%.
Today, those 1,000 shares would produce $3,078 of annual dividend income. That's a 42% increase from the first year. It puts the investor's yield on their initial cost at 8.2%. An investor would collect $256.50 in dividend income each month at that rate.
The investor would have collected a total of $28,430 in dividend income over the last decade, recouping 76% of their initial investment.
Meanwhile, they'd still hold 1,000 shares worth $57,420 today. That's a 54% increase on their initial investment. Add in the dividend income, and the total return would have been 130%.
More income growth ahead
Realty Income should be able to continue growing its dividend in the coming years. The REIT has built a durable and increasingly diversified portfolio of income-producing commercial real estate. It focuses on properties leased to tenants in industries resilient to economic downturns and the pressure of e-commerce (e.g., grocery stores, pharmacies, warehouses, and gaming properties).
It utilizes net leases, which makes tenants responsible for covering maintenance, real estate taxes, and building insurance. These features enable it to generate very steady rental income.
Meanwhile, the REIT has a very conservative financial profile. It has a relatively low dividend payout ratio for a REIT (76.3% of its adjusted funds from operations last year). That allows it to retain cash to fund new investments. It also has an elite balance sheet and credit rating. That gives it greater access to lower-cost capital to fund new investments.
It should have plenty of investment opportunities. Realty Income estimates that there's a $5.4 trillion total addressable market for net lease real estate in the U.S. and $8.5 trillion in Europe. The company has grown its overall investment opportunity by expanding into new property verticals like data centers, gaming, consumer-centric medical, and other developed countries in Europe.
Realty Income believes it has the financial flexibility to make the investments that will grow its adjusted funds from operations by 4% to 5% per share over the long term. That growing cash flow should enable the REIT to continue increasing its dividend.
A magnificent passive income producer
Realty Income has done a terrific job paying dividends over the years. The REIT has steadily increased its monthly payment, enabling investors to collect more income each year. That should continue in the future. Because of that, it's a great stock to buy and hold for a steadily rising stream of passive income.
