I'm on a mission to reach financial independence through passive income. Investing in high-yielding dividend stocks is a core piece of my strategy, so I tend to buy several dividend stocks each month as I have cash to invest.
However, if I had to limit myself to just one high-yield dividend stock this July, Realty Income (O +0.71%) would be it. Here's why I think it's the quintessential income investment.
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Built to deliver dependable monthly dividends
Realty Income isn't like other real estate investment trusts (REITs). While the sector as a whole is an ideal spot for generating passive income, Realty Income really takes that concept to another level. The company's stated mission is "to invest in people and places to deliver dependable monthly dividends that increase over time." That's why Realty Income has become known as The Monthly Dividend Company.
It has an impeccable record of paying dividends. Realty Income has declared 660 consecutive monthly dividends since its formation, and the REIT has raised its payment 131 times since its public market listing in 1994. It has also increased its dividend for 111 consecutive quarters and 30 straight years, and it's grown its dividend at a 4.2% compound annual rate during that period.
NYSE: O
Key Data Points
The foundation of the REIT's dividend is its high-quality real estate portfolio. Realty Income owns 15,600 properties in retail, industrial, gaming, and other sectors across the U.S. and Europe, net leased to the world's leading companies. Net leases provide it with stable rental income because tenants cover all property operating expenses, including routine maintenance, real estate taxes, and building insurance. The company owns properties leased to tenants in industries resilient to economic downturns and isolated from the pressures of e-commerce. These account for 91% of its total rent.
Realty Income fortifies its foundation with a top-tier financial profile. It has one of the 10 highest credit ratings in the REIT sector, which provides it with low borrowing costs and significant financial flexibility. It also has a conservative dividend payout ratio of about 75% of its adjusted funds from operations (FFO).
Durable growth
Realty Income's real estate portfolio produces highly resilient cash flows. Meanwhile, its strong financial profile gives it the flexibility to continue growing in any market environment. It has a remarkable history of delivering durable earnings growth.
Its adjusted FFO per share has risen at a 5% annual rate over the past three decades. The REIT has had only one year when it didn't deliver positive adjusted FFO per share growth. That was in 2009, during the depth of the financial crisis.
Realty Income is in an excellent position to continue growing. The REIT's conservative dividend payout ratio enables it to retain meaningful excess free cash flow, approaching $1 billion annually, and its elite balance sheet provides it with the capacity to grow. On top of that, the REIT is tapping into the massive private capital market by launching its U.S. Core Plus Fund. That strategy will provide it with additional capital to invest and management fee income.
The company has a massive opportunity to continue expanding its portfolio. While it's the seventh largest global REIT with $59 billion of real estate in eight countries, that's only a tiny fraction of the global net lease market opportunity, which it estimates is $14 trillion across the U.S. and Europe. Realty Income has been steadily expanding its opportunity set by adding new investment verticals with additional properties such as gaming and data centers, new European countries, and credit investments. Given the size of the market opportunity, Realty Income can remain selective by closing only the best investment opportunities. Although it sourced $43 billion of deals last year, its investment volume of $3.9 billion represented 9% of its investment potential.
A premier passive income investment
Realty Income is an incredible dividend stock. The REIT pays a high-yielding monthly dividend of 5.5% that steadily grows and backs that payout with a top-notch portfolio and financial profile, providing investors with a bankable income stream. Realty Income's combination of payment frequency, yield, growth, and financial strength is why I would choose to buy its shares if I could purchase just one dividend stock this month.
