Investing in REITs is all about the dividend yield.
Passive income investors love real estate investment trusts (REITs) because their dividends are often high-yielding and reliable. REITs are required to pay 90% of their income as dividends, which can lead to some high payments.
Realty Income (O -0.25%) is one of the best. It’s a retail REIT and leases its properties to some of the most stable essentials retailers, so it reliably gets its rent and pays its dividend. It has the rare feature of paying a monthly dividend as well, making it even more attractive to some investors. The stock’s most recently declared monthly dividend is $0.2625 per share, working out to a forward yield of about 5.7%.
Let’s see how much money you would have today if you’d invested $1,000 five years ago.
The magic is in the dividend
Dividend-paying companies are usually past their high-growth stage. Investors don’t expect high gains from the stock itself. In broad terms, the higher the dividend yield, the lower the expectation for the stock price to go up.
Realty Income stock is down 4% this year. Since yield works conversely with price, as Realty Income’s stock has dropped, the yield has risen. The 5.7% yield at the current stock price is more than quadruple the S&P 500 average.
If you’d invested $1,000 in Realty Income stock five years ago, you’d have $1,040 today if you’d reinvested dividends. That includes a 18% decline in the stock price. The market isn’t being kind to real estate stocks in the high-interest-rate environment. Realty Incomes stock’s dividend itself increased 16% over the past five years.
The stock’s popular with dividend investors as it comes with Realty Income’s rock-solid stability — it has paid a dividend monthly for more than 53 years, with 107 consecutive quarterly increases.
For passive income investors, Realty Income is a great option.
Jennifer Saibil has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Realty Income. The Motley Fool has a disclosure policy.