A Reliable Source of Passive Income: Why I’m Betting on Realty Income
As someone striving for financial independence, I’ve made it my mission to grow my passive income to cover my living expenses. To achieve this goal, I’ve been investing in high-quality dividend stocks with a proven track record of delivering consistent returns. One stock that has caught my attention is Realty Income (NYSE: O), a real estate investment trust (REIT) that embodies everything I look for in a dividend stock.
A Model of Consistency
Realty Income has an impressive history of paying consecutive monthly dividends, with 652 payments made to date. The company has also increased its dividend payout 127 times since going public, including in each of the last 30 consecutive years and the past 108 quarters in a row. This level of consistency is a testament to the company’s commitment to delivering value to its shareholders.
A Sustainable Foundation
The REIT’s dividend currently yields around 5%, which is significantly higher than the S&P 500 index’s dividend yield. More importantly, the company generates more than enough cash flow to cover its dividend payment. In the first half of this year, Realty Income produced nearly $1.8 billion of adjusted funds from operations (FFO), which covered its $1.3 billion dividend outlay with almost $500 million to spare.
A Strong Balance Sheet
Realty Income boasts a strong balance sheet, with lower leverage ratios and a high-quality portfolio. The company is one of only eight REITs in the S&P 500 with two A3/A- credit ratings or better. This conservative financial profile gives the company the flexibility to continue expanding its real estate portfolio and increasing its dividend payout.
Growth Drivers
Realty Income has two primary growth drivers: rent growth and accretive acquisitions. The company signs long-term net leases with high-quality tenants, which provides a predictable source of rental income. The leases also feature escalation clauses that increase rents by an average of 1.5% each year. Additionally, the company’s abundant post-dividend free cash flow allows it to internally fund a meaningful amount of acquisitions each year.
A Bright Future
Thanks to its strong financial profile and growth drivers, Realty Income is well-positioned to deliver consistent returns in the future. The company estimates that it can internally grow its adjusted FFO per share by about 2% each year. With its abundant access to external funding, the company can also make additional accretive acquisitions to drive growth.
Why I’m Investing in Realty Income
Realty Income is the type of dividend stock I want to help anchor my passive income. The company pays a very sustainable, high-yielding dividend that should continue to rise. With its strong balance sheet, growth drivers, and bright future, I’m confident that Realty Income will remain a core income position for me in the coming years.
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