"It's far better to buy a wonderful company at a fair price than a fair company at a wonderful price" Warren Buffett.

For Buffett, wonderful businesses have a durable competitive advantage -- or, a unique quality that creates a barrier to keep competition from invading profits.

While Realty Income (NYSE:O) may not have a powerful brand name or patents, here are three key advantages that gives 3.9% dividend yielder Realty Income an edge over the competition.

3. Strong relationships
Over Realty Income's 45-year history of buying and leasing commercial properties they have created a network of 231 valuable tenant relationships.

While this is significantly fewer than competitors National Retail Properties' 400 tenants or American Realty Capital Properties' 541 tenants, what Realty Income lacks in total number of tenants they make up for in their ability to harness those relationships. 

Of Realty Income's $587 million in acquisitions over the last two quarters more than 80% were relationship driven. This is compared to about two-thirds of their acquisitions being from existing tenants in 2013. Ultimately, growing their portfolio organically has been and will continue to be an area Realty Income can exploit with consistent success. 

Moreover, during the company's first quarter conference call this year CEO Case suggested that "based on our deep relationships with tenants we're seeing transactions and investment opportunities that are not fully on market." 

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Having the opportunity to acquire properties before competition even has a chance to look is a huge advantage, and even more so considering the quality of Realty Income's top tenants shown above.

2. Location, location, location 
While owning of a piece of land in the Alaskan Wilderness may not be particularly valuable for leasing to retail businesses, owning well-located real estate in populated areas is Realty Income's greatest competitive advantage.

Because going through each of Realty Income's 4,000 plus properties sounds cruel and unusual, instead, looking at the companies' historical occupancy is a much simpler way to prove the quality of its assets. This is because strategically located properties are essential to retail businesses – therefore making tenants more likely to renew their leases – they are easier to release to new tenants, and easier to sell. 

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As you can see in the chart above, Realty Income has kept occupancy above 96% since 1992 which suggests the company's properties hold significant value for the tenants that rent from them. 

1. High switching costs
As of September 30th, the average remaining lease length on Realty Income's portfolio was 10.4 years. So there are literal switching costs if tenants attempt to break their lease early, and that's not even considering expenses associated with relocating. 

However, if a property is poorly located and a tenant's business isn't performing, a lease break fee is going to be the least of their worries. But, again, by owning real estate that enhances a tenant's business the cost of switching locations becomes much greater. Moreover, by owning properties that are valuable to tenants it gives Realty Income leverage to consistently increase rent over time.

Ultimately, this makes for a mutually beneficial relationship where the tenant can be successful and Realty Income can generate steady income streams that are protected against competition. 

Bonus: Management 
Brands can fade, patents expire, and even the most attractive real estate can lose value, this is why investors need a management team that strengthens competitive advantages over time. 

Realty Income's management has both enhanced existing relationships while nearly doubling the number of tenants since the 2010. Also, it is their disciplined and long-term approach to growing quality assets that keeps occupancy high, generates consistent revenue, and allowed the company to pay and increase their dividend every year since they went public in 1994. 

It is the combination of key competitive advantages and a management team that has proven their ability to widen these advantages over time that makes Realty Income a wonderful dividend stock and a solid buy today for 2015 and beyond.

 

Dave Koppenheffer has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.