It's been a tricky past few months for investors. Things seem to be changing, but it's not exactly clear how. It's only clear that what worked well in the recent past isn't working quite as well now. It may be time to modify your target allocation, dialing back on higher-risk growth to make room for more value and income.
With that as the backdrop, Realty Income (NYSE: O) is arguably well-suited as a foundational dividend payer for most people's portfolios.
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What's Realty Income?
It's not exactly a household name, but there's a good chance you or someone living in your household regularly benefits from the service it provides. See, Realty Income is a real estate investment trust, or REIT for short. These are simply companies that own revenue-bearing real estate like hotels, apartment complexes, office buildings, and more, passing along the bulk of their rent-based profits to shareholders.
Even by REIT standards, though, Realty Income is unique. Its focus is retail space -- strip malls, shopping centers, and stand-alone stores. It owns 15,450 different store spaces in the United States and Europe, renting this square footage to more than 1,500 tenants including Dollar General, FedEx, Walmart, and Home Depot. As of the end of the third quarter, 98.7% of its properties were leased, with an average of 9.4 years remaining on all of its current lease agreements.
Clearly the company's doing things right, by virtue of being able to attract and retain high-caliber long-term renters.
But there's a handful of far more specific reasons you might want to plow into a position in this REIT like there's no tomorrow.
Four reasons to buy Realty Income stock
As the old adage goes, the devil is in the details. For investors this just means the seemingly little things often end up making the difference between better-than-average returns and subpar ones. To this end, there are four specific reasons Realty Income would be a great income-generating value addition to most people's portfolios.
1. It's on sale
Not every stock is a compelling buy simply because it's suffered a sell-off. Sometimes stocks deserve the setback!
Not this one, though. Realty Income stock's 15% pullback from its October peak (and lack of net progress since it was upended by the COVID-19 pandemic) is more about circumstances and assumptions than it is about the company's performance. This REIT's revenue has more than doubled in just the past three years, as has its operating income. Its funds from operations -- a cash-flow measure applicable to REITs -- isn't quite as consistent from one year to the next, simply because its own borrowing costs are forever changing. But over the past five years, Realty Income's per-share funds from operations have grown at an annualized pace of over 5%.
O Revenue (Quarterly) data by YCharts
More to the point, there's no discernible, well-supported reason this stock has underperformed for the past few weeks, let alone the past few years. Act on the market's misstep while you still can. You'll be plugging in while its forward-looking dividend yield stands at a healthy 5.8%.
2. Realty Income's dividend (and its growth) are reliable
As was noted, Realty Income's revenue and profits are not only reliable, but are reliably growing as well. This helps buoy the REIT's stock price even if it hasn't helped much lately.
There's a far more direct and tangible benefit to this fiscal success than attractive fundamentals, though. These results -- and Realty Income's cash flow in particular -- support a dividend that's not only been paid like clockwork since the REIT was founded in 1969, but has been raised every year for the past 30 years. In fact, its per-share dividend payout has been upped every quarter for the past 109 quarters. That's 27 years' worth of quarterly dividend payment increases.
O FFO Per Share (Quarterly) data by YCharts
That streak isn't apt to be broken anytime soon.
3. You'll collect monthly payments
Although its dividend has grown for 30 consecutive years and been upped in each of the past 109 quarters, Realty Income doesn't make these payments on a quarterly basis -- it dishes them out on a monthly basis! That's why it's such a popular holding for investors who use dividends to pay their recurring monthly costs like utility bills, insurance premiums, house payments, and the like. In fact, this REIT's dividend has grown at an inflation-beating pace of 4.2% since 1994, when it became an NYSE-listed equity.
4. This REIT's business is actually resilient
Finally, while the so-called retail apocalypse is a well-documented and legitimate concern, it's not a serious concern for Realty Income. Its tenants (like the aforementioned Walmart and FedEx) are among the most resilient consumer-facing companies that can continue paying their rent even when times are tough.
The proof? One only has to know how well the company continued to perform when the world was in the throes of COVID-19's impact. Even back in 2020 Realty Income's occupancy rate only slipped to a multiyear low of 97.9%, and it was still regularly collecting more than 93% of the rent it was supposed to be collecting during that difficult period. That's incredible given the challenging circumstances in place then. Chalk it up to the surprising resiliency of the brick-and-mortar retailing industry, and the sheer fiscal strength of Realty Income's tenants.
Should you invest $1,000 in Realty Income right now?
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James Brumley has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends FedEx, Home Depot, Realty Income, and Walmart. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
