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.
This assumes retail shopping at physical stores continues, right?
This article reminds me of the old joke:
Q. Do you know how to become a millionaire farmer?
A. Invest two million dollars in a farm.
;-)
Quick! Invest in this company so you too can help end private home ownership, Yay!
“My REITS have gone up along with paying good dividends.”
Congrats.
Now—sell them. I think you know what is going to happen next.
“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...”
(But I’m no expert...”). I agree! I think you meant to say long term capital gains rate. as short term capital gains are taxed at regular income rates.
If you hold the stock for more than a year then dividends are taxed at the long term capital gains rate.
If any dividends are considered return of capital they are capital gains.
That's a good point. Perhaps wait for the R.E. collapse then maybe reconsider.
(Once President Harris is installed (Slow Joe clearly won’t make it to 2024) markets will tank further and faster.)
He’s made it longer than I thought he would. I say that because he didn’t look good on the campaign trail.
I can’t imagine what’s coming with her. The next level.
Meanwhile I’m surrounded with flippant normally bias.
Friends don’t have food because ... ,”it doesn’t last”.
I guess rotating the supply is like crazy difficult, huh?
If their stock price was in $25 to $35 range, I might buy.
However, its $60+ so I’m passing.
Also PE at 65+ is a little high for my taste.
As noted their dividend is good.
They do have solid institutional investors:
Vanguard
Blackrock
State Street
Cohen & Steers
Bank of America
I just don’t see these guys squeezing out much more on this stock.
Dividends are not capital gains. They are taxed as dividends, at your normal rate. Dividends are never capital gains.
The graph conveniently starts are year 2000. In October 2019, the stock had a high of $79.25. Then it dropped to $48.31 in March 2020, and is slowly recovering. It is now at 64.87 per share. The PE Ratio is a staggering 65.86.
“Now—sell them. I think you know what is going to happen next.”
Nope. Had them for 30 years. Along with my other good dividend stock.
My dividend income taxed at a lower rate goes up and over the long term so do the stocks.
REITs + Recession = I’m old enough to have seen how that story ends. And young enough to remember.
And that was without the impact of Work from Home/Hybrid.
“It almost sounds like Target and Kohls are going the way of Kmart and Sears.”
I’ve been thinking that for a few months, especially with Target’s recent announcement:
https://www.fool.com/investing/2022/06/14/targets-inventory-is-a-big-problem-heres-what-inve/
Bump
“Dividends are not capital gains. They are taxed as dividends, at your normal rate. Dividends are never capital gains.”
You need to consult a CPA for your taxes!
Dividends aren’t free money — they’re usually taxable income. But how and when you own an investment that pays them can dramatically change the dividend tax rate you pay. There are many exceptions and unusual scenarios with special rules — see IRS Publication 550 for the details — but here’s generally how dividend tax works.
What is the dividend tax rate?
The tax rate on qualified dividends is 0%, 15% or 20%, depending on your taxable income and filing status. The tax rate on nonqualified dividends is the same as your regular income tax bracket.
https://www.nerdwallet.com/article/taxes/dividend-tax-rate
Ping for later.
No thanks.
Bank your funds into cash until the market recovers.
No sense in flushing it away.
This won’t be over for another 2.5+ years.
” We’re going into a recession, what happens to real estate then?”
We had a recession in 2008. Buy 2012 REITS were double pre-recession values.
No Junior, that’s not what I meant to say.
Long time no talk! We should do this more often.
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