Realty Income Yields 5.2%. Here's Why the Payout Keeps Growing.
Key Points
Realty Income is one of the more conservative REITs, with a portfolio of more than 15,500 properties.
Beyond 31 years of hikes, it has also increased its monthly distributions for 115 straight quarters.
Its triple net lease model and an emphasis on recession-resistant industries make it one of the more reliable REITs on the market.
The appeal of real estate investment trusts (REITs) is that you can own a basket of income-generating opportunities with a single investment. They typically yield more than money market funds or short-term CDs, but they also carry price volatility risk. Some REITs are understandably riskier than others, but on the safer side of the spectrum, you have Realty Income (NYSE: O).
Realty Income is one of the country's largest REITs. It's one of the few out there that cut monthly dividend checks, a plus for retirees or anyone relying on regular income from their investments. The most noteworthy thing about Realty Income is that it recently increased its distributions, marking 115 consecutive quarters of increases. Yes, that is not a typo.
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It adds up
Inflation and rising rates are often risks for many REITs, but that's where Realty Income's structure shines. Its portfolio of more than 15,588 properties is offered as triple net leases. The tenants cover property taxes, insurance, and routine maintenance expenses. This is on top of the gradually rising base rent payments.
It also helps that its properties are heavily weighted to serve all-weather industries. It may have a 78% concentration in retail properties, but its two largest segments -- supermarkets and convenience stores (at 20.5% of the portfolio) -- will draw shoppers in most economic and inflationary climates.
Finally, while its dividend has risen for 31 consecutive years, the same can't be said about the REIT itself. There will be stretches of downticks. There's no such thing as a free lunch or a free 5.2% yield.
However, Realty Income has doubled the S&P 500's (SNPINDEX: ^GSPC) return since the REIT's 1994 market debut. It knows how to play offense, even for an investment that is widely viewed as defensive.
Rick Munarriz has positions in Realty Income. The Motley Fool has positions in and recommends Realty Income. The Motley Fool has a disclosure policy.