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It's done that and more. Not only are we earning a 7% yield on our original purchase price, but we're sitting on some fantastic capital gains to boot.
It just goes to prove what I've been saying for the past few weeks (and for my entire career, really). Successful dividend investing does not have to be complicated -- and the high yields are out there if you know where to look.
Today, I want to introduce you to the company and explain why it's been such a great performer for us over the years. It certainly isn't alone, either. And if history is any guide, stocks like this should continue to produce compounding returns for us for many years to come.
One Of The Best Dividend Payers On The Entire Market
Realty Income (NYSE: O) can trace its origins back to 1969 when its founders purchased their first property (leased to a Taco Bell). By the time it went public in 1994, the portfolio had increased in size to 630 properties worth $450 million.
A decade later, the portfolio had doubled in size to 1,200 properties. And today, this coast-to-coast empire spans more than 6,500 properties.
Most of the firm's $10 billion portfolio is invested in freestanding retail properties located in prime, high-traffic spots. And they are leased to reliable tenants that dutifully pay their rent on time each month -- like Taco Bell, Circle K, Walgreens (NYSE: WAG) and Regal Cinemas (NYSE: RGC).
When Realty Income debuted on the New York Stock Exchange in 1994, the company was generating approximately $40 million in funds from operations (FFO) annually. Now, it's churning out that much every few weeks. Because the company is structured as a real estate investment trust (REIT), every penny of that profit is exempt from the tax bite of Uncle Sam. That leaves more cash on the table to be divvied up.
And distributions are paid out monthly, which means your interest compounds even faster.
Realty Income has reliably dished out more than 600 straight monthly dividends, a remarkable stretch that dates back 50 years to 1970. Right now, investors are getting $2.83 per year -- which puts the yield at close to 4%.
Payouts have been rising steadily, not once per year, but every 90 days. In fact, the company has announced 96 consecutive quarterly dividend increases. On average, distributions have been climbing 5% annually over the past two decades.
Source: Yahoo Finance
There have been some harsh commercial real estate downturns over the past 40 years. But Realty Income has been a steady all-weather performer. Even during the financial crash and recession of 2008-2009, occupancy rates never dipped below 96%.
Today, they stand at close to 99%, with minimal deviation from quarter to quarter.
Part of that stability comes from the deep tenant base. Realty Income's renters represent 50 diverse industries ranging from apparel to grocery stores, most of which are resistant to e-commerce threats.
Second, the properties are typically rented under triple-net leases, in which the tenants (not the landlord) are responsible for property taxes, insurance and maintenance expenses. That helps minimize the impact of rising upkeep costs and leads to superior margins. Better still, most leases have built-in clauses that stipulate automatic 1% to 2% annual rent hikes.
Finally, most of the company's renters sign long-term leases that range from 10 to 25 years. Compare that with other real estate owners: Hoteliers rent their rooms by the night; storage facilities lease space one month at a time; and apartment complexes usually lock up renters for 12 months.
Action to Take
All of this helps explain why Realty Income's mailbox keeps filling up with rent checks every month -- and why investors haven't missed a dividend since Richard Nixon was president.
Not one company in a thousand has paid dependable monthly income for as long as Realty Income. Bottom line: It is quite simply one of the best and most reliable dividend stocks around.
As noted in the chart above, we're up by more than 122% on our position in High-Yield Investing. And we're also earning a yield of nearly 7% based on our entry price.
Now, if you look up the stock's yield today, you'll see that it "only" offers about 4% if you buy today. But keep in mind that this is more than double the average S&P 500 stocks. And if history is any guide, the dividend will continue rising for many years to come.
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