Realty Income (O -0.48%) has completed a phenomenal job producing passive earnings for its traders through the years. The actual property funding belief (REIT) has paid out over $9.3 billion in dividends all through its historical past, steadily rising the per-share cost. These dividends have actually added up for traders who’ve held shares of the REIT over the long run.
Turning a small funding into a big-time earnings stream
Realty Income has been paying dividends for greater than 50 years, together with 27 as a publicly traded firm. The REIT has elevated its dividend cost 115 instances since coming public in 1994, with the final 98 coming in consecutive quarters. Overall, it has given traders a increase yearly since going public, placing it in the elite class of Dividend Aristocrats.
To put this dividend development into perspective, we’ll take into account a hypothetical funding of 100 shares made a decade in the past, which might have price about $3,500. Given Realty Income’s inventory value and dividend cost on the time, that preliminary funding would have had a dividend yield of round 5%. That implies traders would have generated about $175 of dividend earnings in that first yr.
That annual earnings stream would have steadily grown over the following decade, with the REIT rising its payout by about 70% throughout that time-frame. At the corporate’s present dividend price, that preliminary funding would generate almost $300 in annual dividend earnings. That implies a yield on the preliminary price of round 8.5%.
Meanwhile, the cumulative dividend earnings over the previous decade could be round $2,700. That implies traders have already made again roughly 77% of their preliminary funding by means of dividends alone. In addition to that, they might have benefited from some significant inventory value appreciation. Shares of Realty Income have virtually doubled over the previous decade. That has pushed the worth of the unique funding as much as round $7,000 on the current inventory value.
And all of those calculations do not embrace the compounding results of a dividend reinvestment plan (DRIP), which takes your dividend earnings and makes use of it to purchase extra shares of the inventory. That, in flip, boosts your dividend quantity from the extra shares you are shopping for.
The key to Realty Income’s dividend development success
Realty Income focuses on paying a month-to-month dividend that it commonly will increase. Given that emphasis on offering traders with a reliable and rising earnings stream, the REIT takes a conservative method.
That begins with the property varieties it targets. The REIT seeks diversified sources of lease income by shopper, trade, geography, and property sort. It focuses on proudly owning freestanding properties, and signing internet leases with high-quality tenants working in sturdy sectors. That lease construction makes the tenant chargeable for upkeep, constructing insurance coverage, and actual property taxes, enabling Realty Income to gather very secure rental earnings. Meanwhile, the REIT’s diversified method and concentrate on high quality and sturdiness assist cut back threat, enhancing the sustainability of its rental earnings.
Another key side of the REIT’s technique is its conservative monetary profile. Realty Income has paid out a median of round 75% of its adjusted funds from operations in 2022. That affordable payout ratio provides it a cushion to keep up its dividend throughout robust instances whereas enabling it to retain some money for funding functions. Meanwhile, it additionally has one of many highest credit score scores in the REIT sector. That will increase its entry to lower-cost funding. These options give it plenty of monetary flexibility to proceed buying income-producing business actual property.
Acquisitions have been a huge development driver for Realty Income through the years. It has made $29.4 billion of actual property investments since 2010. That consists of a couple of large-scale offers — American Realty Capital Trust in 2013 and VEREIT in 2021 — and a regular stream of sale-leaseback transactions to amass properties immediately from owner-operators. The REIT expects to buy greater than $5 billion of properties in 2022 alone, which ought to allow it to proceed rising its dividend.
A nice long-term funding for earnings seekers
Realty Income has completed a phenomenal job rising its dividend through the years. That has enabled the REIT to show a comparatively small preliminary funding into a a lot bigger earnings stream over time. Given its conservative method, it ought to be capable to proceed rising its dividend in the years to return. That makes it a really perfect inventory for income-focused traders with a very long time horizon.
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