Actionable insights straight to your inbox

Equities logo

Realty Income: An Amazon-Proof REIT?

One thing that’s led to minimal volatility for this “backdoor” investment is its choice of tenants.

Image via katrina.alana/Flickr CC

We’ve been recommending Realty Income Corp. (O) for almost 10 years—and for very good reason, notes income expert Briton Ryle, editor of The Wealth Advisory.

Its founders William and Joan Clark invested in their first property, a Taco Bell, in 1970, and the company has been growing in size and profitability ever since. That’s because it’s always stuck to its founders’ principles.

Realty Income avoids excessive debt. It does this by financing most of its purchases through well-timed secondary stock offerings. It did an amazing job of that last year.

Management took advantage of high price levels to fund over $1 billion in expansion by selling stock to a hungry marketplace.

But even with that stock dilution, Realty Income still delivers a strong annualized gain. In fact, since going public back in 1994, it’s averaged 16.9% total returns every year. That beats the S&P 500, the Dow Jones, and the Nasdaq. Plus, it’s done it with far less volatility than any of the major indices.

One thing that’s led to minimal volatility for this “backdoor” investment is its choice of tenants. The company focuses on companies that must have a physical location to operate. That means Amazon (AMZN) isn’t going to steal their business.

Another reason its occupancy rates haven’t fallen below 96% in the past decade is the net-lease structure.

It calls for long-term leases. I’m talking 15 to 20 years. That helps cut down on vacancies, too.

It also reduces costs for Realty Income. That’s because, in a net-lease, the tenant agrees to cover costs related to the structure. Everything from maintenance and building insurance to property tax falls on the tenant. That leaves Realty Income free to invest its cash flows in new properties and ever-increasing dividends.

It’s the steady revenue growth provided by the net-lease and the company’s tenant selection strategy that has allowed it to pay out 565 consecutive monthly dividends.

That combination has allowed it to hike that dividend more than 90 times since the IPO back in 1994. The company is currently holding the dignified record of 78 consecutive quarterly hikes. And it’s not likely to stray from that path anytime soon.

The stock is trading a little above its 52-week low. And that represents an opportunity to get in on one of the best long-term investments in the market at a rock-bottom price.

Realty Income has a direct share purchase and dividend reinvestment plan (DRIP). I highly recommend you get in on that. It’ll let you convert your monthly payments into shares of the company and avoid any fees from your broker.

Overall, Realty Income is a long-term investor’s dream come true. And it’s a must-own for any income-oriented investor.

Briton Ryle is Editor of The Wealth Advisory income stock newsletter.

Subscribe to Brit Ryle’s The Wealth Advisory here…

About Founded in 1981, MoneyShow is a privately held financial media company headquartered in Sarasota, Florida. As a global network of investing and trading education, MoneyShow presents an extensive agenda of live and online events that attract over 75,000 investors, traders and financial advisors around the world.

Nvidia’s management talent is one thing I always look for in any investment. It’s not the only thing, of course.
Equities short logo
Equities short logo