Most investors identify themselves as being either growth-minded or income-oriented. A handful of folks might even consider themselves to be dividend-growth seekers, meaning they're looking for dividends that reliably grow as time marches on. And to be fair, most investments fit neatly into one of these three categories -- often at the exclusion of the other two.
There are a handful of stocks, however, that offer a compelling blend of all three attributes that would be at home in nearly anyone's portfolio. One of them is Realty Income (O -1.60%), which not only provides reliable -- and growing -- dividend income, but the long-term capital appreciation most investors would like as well.
This REIT is on firmer footing than it seems like it should be
Never heard of it? Don't sweat it. Plenty of investors haven't. That's because it's not a conventional company.
Rather, Realty Income is a real estate investment trust, or REIT. That just mean it holds rental real estate properties, and passes the bulk of its rent profits along to shareholders.
There are all sorts of real estate investment trusts, ranging from industrial properties to hotels to apartments to office buildings. Realty Income's focus is a bit unique even by REIT standards, though: It specializes in retail and consumer-facing businesses.
As examples, its top three tenants are Dollar General, Walgreens, and Dollar Tree. Other familiar outfits included among its top 20 customers are Walmart and 7-Eleven. All told, it owns over 15,000 individual sites peppered across the United States and Europe.
It sounds like a risky focus. The retail industry is on the defensive, after all, struggling to fend off the advent of online shopping. Too many of Realty Income's tenants seem like they could simply be gone in the near future.
That's not this REIT's reality, however.
See, while certainly some of its renters have been forced to close shop in the past, the bulk of them are organizations with an incentive and the wherewithal to stick around once they've invested in establishing a brick-and-mortar presence. Said more directly, when a company like Walgreens or Walmart signs a lease for a new location, they've made that financial commitment with reasoned expectations of remaining in business there forever.
To this end, 98.6% of the REIT's properties are currently occupied by paying customers, but even when things were tough in 2020 due to the COVID-19 pandemic, Realty Income's average occupancy rate only slipped to 97.9%.
More important to current and would-be investors, this real estate investment trust's past and present returns are far more impressive than you might expect them to be.
The numbers speak for themselves
As noted, stocks that are capable of dishing out both capital appreciation and dividend growth at the same time are few and far between. Realty Income is one of the oddballs, though.
Anyone keeping tabs on this REIT of late (or any other REIT, for that matter) might disagree. Realty Income shares are down 30% from their 2022 high, and they're still within sight of October's multiyear low of $45. Their bigger-picture downtrend also still seems to be underway.
Just know that this is an exception to the norm rather than the norm, rooted in incredibly unique circumstances. After several years of ultra-low interest rates followed by the even lower interest rates seen during the coronavirus pandemic, interest rates were catapulted to multiyear highs beginning in 2022. While most REITs can reasonably handle a gradual rise in interest rates, the past couple of years have proven unusually tough.
There's relief on the horizon, however. Interest rates are leveling off, with rate cuts likely in the foreseeable future. This should recreate the economic backdrop that allowed Realty Income shares to rise at their pre-pandemic average annualized pace of nearly 10%.
In the meantime, Realty Income is still doing what it does best. The REIT's monthly -- yes, monthly -- dividend of $0.257 per share was upped again to $0.2625 per share in May, marking the 125th time this payment has been increased since the real estate investment trust began trading back in 1994. It's the 107th consecutive quarter it's raised its dividend, in fact.
And to be clear, the company hasn't failed to make a monthly dividend payment in any month during this time frame.
O Dividend data by YCharts
Based on this new payment amount, Realty Income's projected dividend yield stands at 6%. You'd be hard-pressed to find another investment option paying such a yield this reliably, let alone growing its monthly payment like this REIT is.
Yes, Realty Income is a buy
This isn't a tough one to figure out. Unless you're simply swinging for the fences in a quest for market-crushing growth, Realty Income offers a great deal to income investors, as well as growth investors. You can have your cake and eat it too, so to speak.
Oh, shares of this real estate investment trust may never dish out massive gains or enormous dividend increases. Between these two types of returns, however, it does consistently provide market-beating potential. You could certainly do worse than this well-kept secret, no matter what your ultimate investing goal is.
