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.
“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.”
The point he is making refers to a long term investing strategy. As in many years. My portfolio averages over 20 years.
You might research REIT Financials, particularly those of O.
“No Junior, that’s not what I meant to say.”
At least you now know that what you said was incorrect.
Thanks boss. Might want to look into it, that’s all. Maybe do another google search. You know, just for good measure.
It’s important to understand the tax liability of an investment.
And that’s all you get for free. Now go play outside and get some sun!
Sorry, I ended it and here I go starting it up again up again, but where’s your gurl?
I was just thinking about that ‘tard the other day. Haven’t seen it in a while.
Start with long term versus short term capital gains then go to qualified dividends.
I’ve owned O for a long time and have built a nice income stream from it. It fits my particular needs but I also own a couple of other REITs. REITs are not just limited to traditional real estate investments so bear that in mind when doing your due diligence.
My broker put me in commodities. Turnip futures. He’s in Nigeria but seems like a nice guy.
I wouldn’t buy any stocks until after November the deep recession is nearing a depression unless things change in November to pull back Biden’s crazy rulings.
Strong post.
Also PE at 65+ is a little high for my taste.
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P/E ratios are not generally used to value REITs.
A better metric is P/FFO.
I actually don’t care about PE ratios in general.
If I like a stock I buy it, regardless.
However, I threw it out there because some people on Free Republic do care.
I had someone pushing this hard. the realestate under CVSs and Riteaids etc.
Mostly inner city stuff when you come right down to it.
There was the push that these commercial sites will never fail.
Well they do and often.
REITS are always risky.
Haha!
“A favorite realty mutual fund of mine is down 19% since April.”
This one lost 50% when covid hit. I dont like a 4% dividend when when you could lose 10 times that in a month or two of a market down turn. At least getting 4-6% in some stodgy utility your more protected.
Start with long term versus short term capital gains then go to qualified dividends.
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Qualified REIT dividends may be entitled to a 20% deduction on pass-through income when certain conditions are met.
P/E ratios are just one of many valuation metrics, but it is widely used as a starting point when assessing a stock’s price relative to its industry peer’s.
Overpaying for a stock, or anything else for that matter, can make it hard to make a decent profit. Paying too much also greatly increases your downside risk. But to each his own.
REITS are always risky.
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All investments are risky. The number of things that can go wrong with a company is endless. That’s why the concept of a margin of safety is so important — it is one way to help minimize your downside risk.
Through 2025. I just fill in the blanks in TurboTax!
I’m on the West Coast where real estate valuations are “beyond stupid.” If its not farmland\woodland or industrial real estate, I’m not touching it with your money.
IMO American capital is trying an “inflationary push” in real estate to hedge their malinvestment in nonessential commercial activities.(See the current bloat & fat on Wall Street)
There is a demographic factor that rarely gets talked about on Free Republic, but is a huge deal when talking about inflation vs deflationary pressure, moving forward.
Boomers(1944-1965) absorbed a huge amount of inflation between 1968-1982.
My position currently is “Boomer offspring’ aren’t going to be able to absorb the current rate of inflation that took hold with the Biden Presidency.
So my belief is short term inflation(2 to 3 years) with deflationary pressure winning, at the back end of the 2020’s.(Boomers dying off)
You have been warned—if it crashes as interest rates rise...
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