Many retirees face a shortfall between their Social Security benefits, savings, and actual income needs. One study found this gap to be as high as 33% for the average U.S. household. As a result, current and future retirees must find additional income sources to live comfortably.
Realty Income (O +0.71%) is an excellent choice for those seeking additional income. The real estate investment trust (REIT) owns a reliable and high-quality real estate portfolio that generates stable rental income. This enables the REIT to pay a steadily rising monthly dividend currently yielding 5.5%. Here's why Realty Income is a safe way to supplement your retirement income.
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A high-quality portfolio
Realty Income's foundation is its high-quality real estate portfolio. The REIT owns over 15,600 properties in the U.S. and parts of Europe. Its portfolio includes retail (approximately 80% of its rent), industrial (15%), gaming (3%), and other properties, such as data centers (2%), net leased to over 1,600 tenants across 90+ industries. About 90% of rent comes from tenants in recession-resistant industries and those less affected by e-commerce, such as grocery stores, home improvement centers, and convenience stores.
The company invests in properties secured by long-term net leases that provide predictable rental income because tenants cover all property operating costs, including routine maintenance, real estate taxes, and building insurance. Most leases raise rents at a low single-digit rate each year. As a result, Realty Income's existing portfolio delivers steadily rising rental income.
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Key Data Points
A fortress financial profile
Realty Income pairs its strong real estate portfolio with a robust financial profile. The REIT pays about 75% of its adjusted funds from operations (FFO) in dividends each year. This cushion will enable it to retain over $750 million of excess free cash flow in 2025 to fund new investments.
The company also has a strong A3/A- bond rating (its credit rating is in the top 10 within the REIT sector) backed by a low leverage ratio, and it has ample liquidity. This financial strength enhances Realty Income's ability to continue expanding its real estate portfolio.
Resilient and consistent growth
Realty Income's portfolio has demonstrated its durability over the decades. Since completing its public market listing in 1994, the REIT had only one year (2009) when it failed to grow its adjusted FFO per share. Overall, it has grown adjusted FFO per share at a more than 5% compound annual rate.
The company's growth and financial strength have enabled it to raise its dividend every single year since its public market listing. Realty Income has increased its payout 131 times, including the last 111 quarters. It has grown the payout at a 4.2% compound annual rate since it went public.
That steady growth is likely to continue. Realty Income's financial strength gives it the capacity to invest in more income-generating real estate. There is a $14 trillion potential market opportunity to invest in net lease properties in the U.S. and Europe. That provides the REIT with a very long growth runway. It has been steadily enhancing its growth prospects by investing in additional property classes (data centers and gaming), more countries in Europe, and through new investment platforms (credit and private capital).
A great way to supplement your retirement income
Realty Income's portfolio generates reliable rental income to support its high-yielding monthly dividend. Its strong financial profile further supports the dividend and its continued expansion. These features make Realty Income an exceptionally safe choice for those seeking to supplement their retirement income.
