Going from building a nest egg to building your passive income is something you’re probably thinking about if you’re nearing or already in retirement. It’s a great strategy for making ends meet when looking to top up your Social Security checks. One name you might want to consider adding to your portfolio is Real estate income (O 1.00%).
Work in round numbers
When it comes to money, it’s just easier to work with round numbers like $1,000. That way, you can just scale up (or, less likely, scale down) to reach the dollar figure you have in mind. On June 14, Realty Income increased its annual dividend to $2.97 per share. So, to create $1,000 of annual passive income, you would need about 337 shares at a cost of about $21,700 of this industry-leading real estate investment trust (REIT).
You can easily earn $1,000 in dividend income with many other stocks, but there are a few things that set Realty Income apart from the pack. For starters, most companies that pay dividends pay quarterly, while Realty Income pays monthly. In fact, she trademarked the name “The Monthly Dividend Company.”
Receiving a monthly dividend check makes budgeting much easier than trying to spread a quarterly check over three months. It sounds silly, but don’t underestimate how comforting it is to know that in about 30 days or less, you’ll see another dividend check arrive in your account.
But “The Monthly Dividend Company” is not limited to the frequency of payments. Realty Income is also a dividend aristocrat, with an impressive 27 consecutive years of annual dividend increases, including a streak of nearly 100 quarterly increases. So not only do you receive a monthly salary, but you also get reliable annual raises.
Those increases, meanwhile, averaged about 4.4%, which seems small today in the face of runaway inflation. But historically, inflation has averaged closer to 3%.
Still, some numbers will help. Realty Income estimates that if you had bought the stock on the last day of 2011, your return would have been about 5%. Thanks to steady dividend increases, your yield on a purchase at the end of March 2022, however, would have been 8.5%. This is the power of slow and steady increases in dividends.
An industry leader
With a market capitalization of approximately $39 billion, Realty Income is the largest net rental REIT you can buy. Net lease means that the REIT owns single-tenant properties where tenants are responsible for most of the operating costs at the property level. In a large enough portfolio, this is a very low risk way to invest. Realty Income owns over 11,000 properties.
The bulk of its portfolio (78% of rents) is in the retail sector, where buildings are fairly interchangeable and relatively easy to vacate or resell in the event of vacancy. The rest of the company’s assets are largely industrial/warehouse, although there is a small “other” group which accounts for around 6% of rents (this includes vineyards and a recently added casino). Meanwhile, around 10% of the company’s rents come from Europe, another fairly recent portfolio shift that opens up a new path for long-term growth.
This portfolio is built on a superior balance sheet, so Realty Income has access to relatively inexpensive debt capital. And, given its impressive dividend history and position as a flagship net lease REIT, it typically enjoys a premium share price. Thus, it also tends to have wide access to cheap equity. This low cost of capital gives Realty Income an edge when it comes to finding and closing new real estate deals.
It’s time to add passive income
Realty Income’s current dividend yield is approximately 4.6%. Compared to the overall market, that’s a pretty generous number. Of course, there are other net lease REITs with higher yields. But none of them can boast the combination of advantages that exist here and, for many investors, paying a high price to get on board this passive income stream is likely to prove a worthwhile decision at long term.