Realty Income Pays a Solid 4.2% Yield
Realty Income Corp (NYSE:O) stock, as its name suggests, is a real estate investment trust (REIT).
In a slow-growth world where top-line growth is virtually non-existent (thank you global economy and currency wars) a good old-fashioned REIT can complement a portfolio of stocks beautifully.
In many jurisdictions, real estate has been the best returning asset class over the last several years. Low interest rates certainly help, but after the subprime mortgage disaster, the resulting belt-tightening improved balance sheets tremendously.
The comeback in real estate prices has been especially pronounced in certain commercial sectors.
Realty Income has been around a while, specializing in the California market. The trust pays monthly dividends. According to the company, it has increased its dividend to unit holders 84 times since listing on the New York Stock Exchange in 1984.
Realty Income’s February dividend just increased five percent over last year. The trust’s current monthly dividend yield is approximately four percent and as a listed security, it’s done very well over time.
The chart for Realty Income stock is featured below:
Chart courtesy of www.StockCharts.com
Being an existing winner and an institutional favorite, this REIT is richly priced. But, as what typically happens in the world of assets, you get what you pay for. This position has done well on the stock market because the underlying business has done so.
Realty Income is a $14.0-billion REIT that Warren Buffett should buy outright.
Certainly, there is validity to the argument that a rising rate environment is tough on utilities, resources, and real estate. But I think it’s fair to say that the market for borrowed money (the cost of capital) can tighten quite a bit before institutional investors start to question balance sheets.
A well-managed REIT is a welcome addition to an equity market portfolio, especially, of course, one that is geared towards producing income.
Monthly income is especially helpful in this regard. There are plenty of REITs around. I happen to like Realty Income.
Among the reasons I do are its track record of operational success, its excellent long-term increases in the amount of dividends paid to unit holders, and it’s decent performance on the stock market.
This slow-growth world is here to stay for a while. A recession is a very real possibility this year in the U.S. economy.
What’s Valuable in the Stock Market Today?
For those investors looking to make new additions to their portfolios, you want quality—professionally managed businesses that have proven they do right by shareholders during the tough times, while thriving during up cycles.
A good old-fashioned REIT isn’t for every portfolio, of course. But one like Realty Income can be thought of as a portfolio stabilizer. It’s the kind of income-generating security that you don’t have to worry about as much over more growth-oriented businesses.
Because of the incredible amount of monetary stimulus that’s carried the stock market so much over the last seven years, we’re due for some downtime.
And this is just one of the reasons why dividend income is so important today.
As always, one of my favorite long-term investment strategies is automatic dividend reinvestment. This is a proven strategy that can work for any type of equity investor.