It takes money to make money. The good news is that if you have a big chunk of money to invest, you can potentially make a lot of money on that investment. That's if you chose the right investment.
Realty Income (O 0.63%) has been a great investment over the years. The real estate investment trust (REIT) has steadily grown its earnings and dividend during its three decades as a public company. That has enabled it to create a lot of value for its shareholders.
The REIT is in an excellent position to continue making money for its shareholders in the future. Because of that, it's an ideal stock to buy if you have a lot of money to invest, especially if you want to generate income from your investment.
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A wealth-creating machine
Realty Income has a very simple strategy: Its mission is to invest in places that deliver dependable monthly dividends to its investors that increase over time.
Realty Income owns a diversified portfolio of income-generating commercial real estate (retail, industrial, gaming, and other properties) secured by long-term net leases with many of the world's leading companies.Net leases produce very stable rental income because tenants cover all property operating costs, including routine maintenance, real estate taxes, and building insurance.
The REIT's portfolio produces very durable and growing rental income. Since coming public in 1994, the REIT has only had one year when it didn't increase its adjusted funds from operations (FFO) per share (2009). However, it has raised its monthly dividend every single year (130 times overall and for 110 straight quarters), growing the payout at a 4.3% compound annual rate. That has allowed it to deliver a positive total operational return each year (dividend income yield plus adjusted FFO per share growth rate).
Meanwhile, it has produced an average annual total return of 15.6%. That would have grown a $10,000 investment made when it came public into a lot of money over the years:
The initial shares purchased would be worth over $130,000. Add in dividend income (and dividend reinvestment), and the total value would be over $843,000.
Built to continue growing shareholder value
Realty Income's past success does not guarantee it will produce similar returns in the future. It faces headwinds from higher interest rates and tenant defaults. There's also a lot of competition in the sector.
However, the REIT built its business to pay an attractive and growing monthly dividend. That puts it in a strong position to continue growing wealth for its shareholders in the future.
The company's dividend alone provides investors with a solid base return. Realty Income currently yields nearly 5.9%, well above the S&P 500's (^GSPC -0.67%) sub-1.5% dividend yield. A $10,000 investment would produce almost $590 of dividend income each year at that rate. That's passive income you can spend or reinvest in generating additional dividend income.
That income stream should steadily rise in the future. Realty Income has historically grown its adjusted FFO per share at an average annual rate of around 5%. It gets a little bit of a bump from rent growth. The main growth driver is new investments.
Realty Income invests billions of dollars each year into additional income-generating properties. It completes sale-leaseback transactions with owner-operators, funds build-to-suit development projects, acquires portfolios from other investors, and merges with other REITs.
Last year, Realty Income closed $3.9 billion of property deals and acquired fellow REIT Spirit Realty in a $9.3 billion deal. This year, the REIT expects to invest at least $4 billion in new properties. It has a conservative dividend payout ratio and one of the strongest financial profiles in the REIT sector, giving it lots of flexibility to invest in expanding its portfolio.
The company has a massive investment opportunity set. It has been steadily diversifying its portfolio over the years by investing in new property types (industrial, gaming, and data centers), countries (several European markets), and investment classes (credit investments like real estate-backed loans and preferred equity).
This strategy has opened new pathways for expansion and increased its total addressable market opportunity to $14 trillion. It also recently launched a private capital fund management platform to tap into the massive $18.8 trillion U.S. private real estate market.
Realty Income's strategy of expanding into new investment verticals has enhanced its ability to continue growing its portfolio, adjusted FFO per share, and dividend. Because of that, it's in an excellent position to continue creating value for its investors in the future.
A top-quality income investment
Realty Income has lived up to its name over the years. The REIT pays a lucrative and steadily rising dividend. It's in an excellent position to continue growing its portfolio, payout, and shareholder value in the coming years. That makes it a great stock to buy if you have some money to invest right now.
