Whether you're a seasoned investor in real estate investment trusts (REITs) or if it's your first time diversifying into publicly traded, income generating, real estate opportunities, you're probably not here by accident. Realty Income (O 0.77%) is as close as you can get to being the standard cable of REIT investing.
Why do so many people turn to Realty Income in order to get a taste of commercial real estate investing? What makes it stand out as a safe REIT in a marketplace with so many alternatives? You have come to the right place. I have several reasons for you to buy Realty Income stock like there's no tomorrow.
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Key Data Points
1. A dividend doesn't have to end with e-n-d
There are dividend stocks, and then there's Realty Income. The commercial property landlord is one of a handful of REITs that distribute dividends monthly. It's a zero-game in theory. A quarterly payout is just divided into three monthly installments. However, it does come in handy if you're relying on dividends to cover monthly living expenses.
However, the monthly cadence does give Royalty Income the ability to jack up its payouts -- a lot. Some stocks have long streaks of boosting their disbursements. Realty Income has come through with 112 consecutive quarters of hikes. So it checks off the box of Dividend Aristocrat with its 30 years of raised distributions, but it has actually come through with 132 hikes along the way. So it isn't just quarterly boosts. Realty Income has announced more than four increases in 10 of the past 11 years.
2. It has 29 years of total operational return growth
Consistency is Realty Income's middle name. Since hitting the market three decades ago, the REIT has delivered 29 consecutive years of positive total operational return. This doesn't mean the the shares themselves move higher every year. Realty Income declined 2% last year, for example, even adjusted for its generous dividend.
This means that the combination of its distributions and its adjusted funds from operations (AFFO) have been positive in each of the past 29 years. It's a streak that has weathered the Great Recession, and even the COVID shutdown of many of its tenants. So in 2020, when it experienced a rare dip in annual same store rent growth -- down a reasonable 1.7% -- its total operational return was still a positive 5.9% increase.
3. The tenants are a 10
A big reason for Realty Income's consistent growth stems from its portfolio. As a provider of triple net leases, the tenant doesn't just pay the going rental rate. The tenant is also on the hook for property taxes, insurance, and regular maintenance costs. The only real risk that Realty Income is taking on is the lease payments it will miss out on and the need to quickly fill that vacancy.
Realty Income has taken a smart approach in constructing its global empire that currently consists of 15,606 properties. Its two largest client categories -- supermarkets and convenience stores, making up more than 20% of its leases -- are historically recession-resistant.
It's not just about handing the keys to steady businesses. Realty Income is choosy when it comes to the properties it takes on, location, and the ultimate tenant. It has invested in just 8% of the sourced volume that it's been offered.
Realty Income knows what it's doing. Its occupancy rate of 98.6% is robust. When it has to release a property, the next party historically pays even more.
4. The yield looks better in today's climate
A lot has happened over the past year. The top-paying money market funds were yielding north of 5% last year. Today they are barely clinging to a 4% annual rate.
Realty Income has gone the other way. It was yielding a comparable 5.2% a year ago. The stock declining 3% over the past year and the annualized run rate of the dividing rising 2%, Realty Income is now yielding almost 5.5%. The gap has widened, and with the Fed now cutting rates in back-to-back months, the appeal of Realty Income in a lower environment for fixed income investing is that much stronger.
