Posted on 06/18/2022 8:03:49 AM PDT by American Number 181269513
Shifting from building a nest egg to building your passive income is something you are probably thinking about if you are near or already in retirement. It's a great strategy for making ends meet as you look to supplement your Social Security checks. One name that you might want to consider adding to your portfolio is Realty Income (O 1.00%).
When it comes to money, it's just easier to work with round numbers like $1,000. This way, you can simply scale up (or, less likely, down) to hit 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 in annual passive income you would need roughly 337 shares at a cost of about $21,700 of this industry-leading real estate investment trust (REIT).
You can easily get to $1,000 in dividend income with plenty of other stocks, but there are a couple of things that set Realty Income apart from the pack. For starters, most companies with dividends pay quarterly, while Realty Income pays monthly. In fact, it has trademarked the name "The Monthly Dividend Company."
Receiving a monthly dividend check makes budgeting much easier than trying to spread a quarterly check out over three months. It sounds silly, but don't underestimate how comforting it is to know that in roughly 30 days, or less, you'll see another dividend check hit your account.
But there's more to "The Monthly Dividend Company" than just the frequency of the payment. Realty Income is also a Dividend Aristocrat, with an impressive 27 consecutive years of annual dividend increases, including a string of nearly 100 quarterly hikes. So not only are you getting a monthly paycheck, but you are getting reliable annual raises, too.
Those increases, meanwhile, have averaged about 4.4%, which sounds low today in the face of rampant inflation. But historically, inflation has averaged closer to 3%.
Still, some numbers will help. Realty Income estimates that if you had purchased the stock on the last day of 2011, your yield would have been around 5%. Thanks to regular dividend hikes, however, your yield on a purchase at the end of March 2022 would have been 8.5%. That's the power of slow and steady dividend increases.
With a roughly $39 billion market cap, Realty Income is the largest net lease REIT you can buy. Net lease means that the REIT owns single-tenant properties for which the lessees are responsible for most property-level operating costs. Across 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 the buildings are fairly interchangeable and relatively easy to release or sell if there's a vacancy. The rest of the company's assets are largely industrial/warehouse, though there is a small "other" grouping that accounts for about 6% of rents (this comprises vineyards and a recently added casino). Meanwhile, about 10% of the company's rent comes from Europe, another fairly recent portfolio shift that opens up a new avenue for long-term growth.
This portfolio rests upon an investment-grade-rated balance sheet, so Realty Income has access to relatively cheap debt capital. And, given its impressive dividend history and position as a bellwether net lease REIT, it is usually afforded a premium stock price. Thus, it also tends to have ample access to cheap equity capital, too. This lower cost of capital gives Realty Income an edge when it comes to finding and sealing new property deals.
Realty Income's current dividend yield is around 4.6%. Relative to the broader market, that's a pretty generous number. To be sure, there are other net lease REITs with higher yields. But none of them can boast the combination of benefits that exist here and, for many investors, paying a premium price to get on board this passive income stream is likely to end up a worthwhile decision over the long term.
If everyone was investing based on MF, everyone would be a bankrupt.
> For starters, most companies with dividends pay quarterly, while Realty Income pays monthly. <
Yes, the author made other points. But that seems like a pretty thin reason to buy a stock.
Anyway, thanks for posting. I’ll be watching this thread for other opinions. Like you, I have some money that need to be deployed. I dunno. Right now I’m leaning towards a money market fund until things settle down. But that’s probably the wrong thing to do.
My first thought is that this may no longer be true (easy to release or sell) with the culture changing to work-from-home or hybrid. I know my company is aging off the leases on about 1/3 of our office space and it not replacing any time soon. Is retail going to be any better? It almost sounds like Target and Kohls are going the way of Kmart and Sears.
Still, some numbers will help. Realty Income estimates that if you had purchased the stock on the last day of 2011, your yield would have been around 5%. Thanks to regular dividend hikes, however, your yield on a purchase at the end of March 2022 would have been 8.5%. That’s the power of slow and steady dividend increases.
Not saying this is a bad investment and should/should not be a part of investment but note the above is “cherry picked”.
I’ve bought REITs in the past. You do get good income, but the value of the security dwindles over time, offsetting the income. And you pay tax on the income. Most of these were a net loss, all things considered.
“cherry picked”
Not cherry picked. That is a very important part of his reason for buying the stock.
This thread comes dangerously close to shilling for a product. I’ll let the moderators decide.
> If everyone was investing based on MF, everyone would be a bankrupt. <
Motley Fool started out as an interesting place. But now they seem to be a mixture of crazy Jim Cramer and a typical tease investment site - become a premium member, and we’ll name one stock that’s about to double!
Maybe they still throw out good stuff now and again. But I stopped following them years ago.
Real estate is about to crash.
Interest rates will hit 15-18% like they did under Jimmy Carter. Gas lines coming as well.
Real estate will topple. Too expensive. Foreclosures will skyrocket.
Commercial real estate is already in trouble as people are working from home. Companies will go to this more as gas prices go up.
Once President Harris is installed (Slow Joe clearly won’t make it to 2024) markets will tank further and faster.
Look for the market to go down another 20% in the next few months. Midterms and impeachment may help.
We need to take the House. Select Trump as Speaker. Then impeach Biden for selling out his country - all the evidence is on Hunter’s laptop and it’d be an easy case to make. Harris would not have been selected unless she, too, was compromised. Kaine was a closet homosexual. I assume Harris was on the take and the evidence is out there. Once the cabal occupiers are out and Trump is sworn in we can turn things around.
This time Trump needs to complete purge D. C. Truly drain the swamp. Disband and reform agencies or just end leftist infiltrated ones.
Going to be a bumpy ride.
The Mormon cult with their one-year supply of food seem to have the right idea. Better have the guns and bullets to defend your stash and family.
The timing is cherry picked, don’t ignore that.
Just be aware. Past performance is not future performance.
“I’ve bought REITs in the past. You do get good income, but the value of the security dwindles over time, offsetting the income. And you pay tax on the income. Most of these were a net loss, all things considered.”
Realty Income has gained value.
My REITS have gone up along with paying good dividends.
You bought the wrong ones.
This is literal rent seeking.
You may get some good dividends for a while, but the real estate market is about to fall through the floor, and if you care about morality in your investments, this is a moral loser. A big part of the reason why things are so distorted in the real estate industry is because of institutional investment in the rental markets. Big companies buy up houses in all cash purchases that individual families otherwise would buy (but can’t compete for prices against a cash rich cpmpany), then rent them out to the same families, skimming profits while the families don’t build up equity or develop a sense of ownership within the community. The hedge funds make out like bandits, but they’re sucking entire regions of the country dry.
True, shills.
Isn’t there a heavy tax penalty with this type of investment? I think it’s taxed at your income rate and not capital gains rates. But I’m no expert...
“The timing is cherry picked, don’t ignore that.”
It was the last 10 years. Typical of its long term performance.
“Just be aware. Past performance is not future performance.”
But it is an indicator of good management and good management is an indicator of future performance.
Thanks for posting American, you are one of the reasons that FreeRepublic is great.
Making thinkers of us all.
But it is an indicator of good management and good management is an indicator of future performance.
I am just telling you eyes wide open.
My first thought as I was reading this, is what happens when the real estate bubble bursts, and when major communities revisit rent control? We’re going into a recession, what happens to real estate then?
A favorite realty mutual fund of mine is down 19% since April. I’ve been out of it since Brandon got into the WH. I’ll let it go down further before I jump back in.
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