Earning passive income can be a life-changing endeavor. The more passive income you can make, the less time you'll need to spend working in the future. Collecting passive income can also help with easing financial stresses, since you'll know you still have some income coming in if you ever lose your job.
If you want to start earning steady passive income this October, buying shares of Realty Income (O 0.56%) is an ideal starting point. The real estate investment trust (REIT) provides a high-yielding monthly dividend, which it has consistently increased for decades. Realty Income's proven record of dividend growth provides confidence, making it an ideal dividend stock to consider buying this month to generate recurring passive income in the years to come.
A dependable dividend stock
Realty Income is one of the largest REITs in the world. It owns over 15,600 properties across the U.S. and Europe. Its portfolio spans retail, industrial, gaming, and other properties that are secured by long-term net leases with many of the world's leading companies. That combination of diversification and lease structure -- tenants cover all property operating costs -- enables Realty Income to collect very stable rental income.
The company's high-quality real estate portfolio provides a very strong foundation for its monthly dividend, which currently yields 5.4%. Realty Income pays out roughly 75% of its adjusted funds from operations (FFO) in dividends. FFO is a metric REITs use to approximate their available free cash flow for dividend payments. That conservative dividend payout ratio provides Realty Income with a significant cushion to weather any future financial crisis, while allowing it to retain a substantial amount of cash flow each year to invest in additional income-producing properties (over $760 million expected in 2025).
Realty Income also has one of the 10 best balance sheets in the REIT sector. That enables it to access low-cost funding to support its continued growth.
The REIT's combination of stable income and conservative financial profile has enabled it to pay a very dependable dividend over the decades. Realty Income has paid 663 consecutive monthly dividends throughout its history. It has raised its payment 132 times since its public market listing in 1994, including the past 112 quarters in a row. The landlord has grown its dividend at a 4.2% compound annual rate over its more than three decades as a public company. That has made it one of the most reliable dividend growers in the industry.
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Plenty of room to continue growing
Realty Income currently owns about $61 billion of real estate in nine countries, making it the sixth-largest REIT. That's a small fraction of the estimated $14 trillion opportunity it sees ahead to invest in global net-lease properties.
The opportunity is so vast that Realty Income can be highly selective, only moving forward with the best new investment opportunities. For example, Realty Income sourced $43 billion of potential deals in the second quarter. However, it only closed $1.2 billion of transactions, or 2.7% of its sourced volume, as it stayed very disciplined.
Realty Income's increasingly diversified platform enables it to cast a wide net and find the best investment opportunities. The company has steadily added new investment verticals over the years, expanding its total addressable market opportunity. It has recently started investing in U.S. gaming properties (a $400 million investment opportunity) and U.S. data centers (a $500 million market opportunity). Realty Income has also expanded into additional European markets and launched a credit investment platform to enhance its long-term growth potential.
The company has the financial capacity to invest billions of dollars each year ($5 billion investment volume expected in 2025). These new property investments will steadily increase Realty Income's FFO per share, which should enable it to continue raising its dividend payments.
A foundational income stock
Realty Income is an ideal stock to buy and hold for passive income. With its dividend currently yielding around 5.4%, every $1,000 invested in the REIT can generate about $54 of annual passive income, which should steadily rise as the landlord increases its dividend. The prospect of collecting a steadily rising payout is why you can buy Realty Income this month and never look back.
