A $3,500 Investment in This REIT a Decade Ago Has Already Produced More Than $2,700 in Passive Income

A ,500 Investment in This REIT a Decade Ago Has Already Produced More Than ,700 in Passive Income

Realty Income (O -0.48%) has performed a phenomenal job producing passive revenue for its traders over time. 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 fee. 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 revenue 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 fee 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 progress into perspective, we’ll think about a hypothetical funding of 100 shares made a decade in the past, which might have price about $3,500. Given Realty Income’s inventory worth and dividend fee 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 revenue in that first 12 months.
That annual revenue stream would have steadily grown over the following decade, with the REIT rising its payout by about 70% throughout that timeframe. At the corporate’s present dividend fee, that preliminary funding would generate practically $300 in annual dividend revenue. That implies a yield on the preliminary price of round 8.5%.
Meanwhile, the cumulative dividend revenue over the previous decade can be round $2,700. That implies traders have already made again roughly 77% of their preliminary funding by dividends alone. In addition to that, they’d have benefited from some significant inventory worth 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 latest inventory worth.
And all of those calculations do not embrace the compounding results of a dividend reinvestment plan (DRIP), which takes your dividend revenue 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 progress success
Realty Income focuses on paying a month-to-month dividend that it often will increase. Given that emphasis on offering traders with a reliable and rising revenue stream, the REIT takes a conservative strategy.
That begins with the property varieties it targets. The REIT seeks diversified sources of lease income by shopper, business, geography, and property kind. 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 accountable for upkeep, constructing insurance coverage, and actual property taxes, enabling Realty Income to gather very secure rental revenue. Meanwhile, the REIT’s diversified strategy and give attention to high quality and sturdiness assist cut back threat, enhancing the sustainability of its rental revenue. 
Another key side of the REIT’s technique is its conservative monetary profile. Realty Income has paid out a mean of round 75% of its adjusted funds from operations in 2022. That affordable payout ratio offers 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 a number of monetary flexibility to proceed buying income-producing industrial actual property. 
Acquisitions have been a massive progress driver for Realty Income over time. 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 accumulate 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 revenue seekers
Realty Income has performed a phenomenal job rising its dividend over time. That has enabled the REIT to show a comparatively small preliminary funding into a a lot bigger revenue stream over time. Given its conservative strategy, it ought to have the ability to proceed rising its dividend in the years to return. That makes it a perfect inventory for income-focused traders with a very long time horizon. 


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