Realty Income, with a slight dip of 0.32%, is renowned for its consistent dividend payments. The real estate investment trust (REIT) recently announced its 108th consecutive quarterly dividend boost, marking its 127th increase since its 1994 IPO. This achievement continues the REIT’s impressive 30-year tradition of raising its dividend at least once annually, with a compound annual growth rate of 4.3%.
The most recent dividend hike nudged the yield a bit over the 5% threshold, and it’s almost certain that more increases will follow. This highlights why the REIT is an excellent choice for those looking to earn passive income from real estate.
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A Structure Built for Reliable Dividends
Realty Income’s core mission is to provide its investors with dependable monthly dividends that grow steadily over time. Its track record speaks for itself. Central to the reliability of its dividends is the strength of its real estate portfolio.
The REIT currently holds a diverse array of about 15,450 properties across the United States and Europe, primarily leasing to retail, industrial, and gaming tenants in sectors that are relatively immune to economic downturns and the rise of e-commerce.
These properties are leased under long-term net leases with financially sound tenants, who are responsible for operating costs such as routine maintenance, building insurance, and property taxes. These leases typically include rental rate increases at a low single-digit annual pace, ensuring a stable and growing income stream that supports the REIT’s ever-increasing dividends.
Realty Income maintains a prudent dividend payout strategy, distributing less than 75% of its adjusted funds from operations (FFO) as dividends in the second quarter. This conservative approach allows the REIT to retain a substantial portion of its cash flow for reinvestment.
Moreover, the company boasts a robust balance sheet, being one of only eight REITs in the S&P 500 with credit ratings of A3/A- or higher. This financial strength provides Realty Income with significant flexibility, enabling it to secure financing at favorable rates compared to companies with lower ratings.
A Vast and Expanding Market Opportunity
Historically, Realty Income has achieved an adjusted FFO growth rate of approximately 5% annually, outpacing the REIT sector average of 4.3%. The company aims to sustain this growth, targeting 4% to 5% annual adjusted FFO per-share growth over the long haul.
Three primary factors contribute to this outlook. First, Realty Income anticipates around 1.5% annual growth in same-store rents. Additionally, the company expects to achieve 2% to 3% annual growth through internally funded accretive acquisitions, supported by post-dividend free cash flow. After accounting for expected bad debt expenses (approximately 0.4% annually) and the effects of rising interest rates on debt refinancing (a 1% to 2% annual drag), Realty Income projects about 2% annual adjusted FFO per-share growth from internal sources.
Beyond these internal drivers, the REIT can achieve an extra 0.5% adjusted FFO per-share growth for every $1 billion of externally funded acquisitions, financed through stock sales and new debt issuance. Realty Income conservatively estimates $4 billion to $6 billion in externally funded acquisitions annually, potentially adding another 2% to 3% in annual FFO per-share growth. Altogether, this results in 4% to 5% adjusted FFO per-share growth each year.
With a vast net lease market opportunity, Realty Income is well-positioned for continued investment growth. The REIT estimates this market to be worth $5.4 trillion in the U.S. and $8.5 trillion in Europe. By expanding into new investment areas like data centers, gaming properties, additional European countries, and real estate credit, Realty Income is extending its growth runway.
An Excellent Strategy for Increasing Income
By consistently building on its track record of dividend growth, Realty Income is poised to continue raising its dividends quarterly. Its robust portfolio, strong financial position, and numerous growth drivers make it an attractive choice for investors seeking a reliable and growing stream of passive dividend income.
Should You Invest $1,000 in Realty Income Today?
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