Why I Can’t Get Enough Of This Passive Income Juggernaut
I like to hold income-producing investments because this passive cash flow gives me more financial flexibility. I can use it to supplement my passive income, make other investments or purchases, or help cover emergency expenses. This extra income helps me stay on track with my financial goals.
One of my favorites passive income investments are Real estate income (O -0.84%). I can’t get enough REIT shares (REITs). Here’s Why I Keep Buying Stock in a Company Built to Pay Its Stable and Growing Investors dividend income.
A great source of income
After sitting on the sidelines for years, I finally added Realty Income to my portfolio in January. I increased my position almost every month, buying shares seven more times. I now own 40 shares and intend to continue to build this position in the future.
The main reason I regularly buy additional shares of Realty Income is to collect more of its attractive dividend. The REIT pays a monthly dividend which currently yields more than 5%. That’s well above 1.7% dividend yield of one S&P500 index fund.
The company’s current monthly dividend payment of $0.248 per share ($2.976 per share annualized) provides me with dividend income of $9.92 per month. Although it’s not a lot of money right now, I expect the payout to continue to grow in the future as I buy more shares and Realty Income increases its dividend.
This dividend payment is based on a solid foundation. Realty Income generates very stable rental income, supported by an excellent real estate portfolio. It has more than 11,400 properties leased to tenants in industries resilient to economic downturns and insulated from the pressure of e-commerce. It uses long-term net leases (NNN), making the tenant responsible for variable costs such as building insurance, maintenance and property taxes. Meanwhile, these leases tend to include annual rental rate escalation clauses, which steadily increase rental income from the REIT’s existing portfolio.
Realty Income pays out a conservative amount of that income through the dividend (76.5% of its adjusted funds from operations in the second quarter). This gives it some cushion while allowing it to retain cash to help fund new investments. The REIT also has a superior balance sheet, which gives it the additional financial flexibility to continue to grow its income-producing real estate portfolio.
Room to keep growing
The other thing I love about Realty Income is its ability to steadily increase its dividend. The REIT has increased its dividend 117 times since its IPO in 1994, including the past 100 consecutive quarters. This easily qualifies the S&P500 member as Dividend Aristocrat.
With its strong financial profile, Realty Income should be able to continue to grow its portfolio and dividend going forward. The company purchased $3.2 billion worth of properties in the first half of this year. This allows it to close more than $6 billion in deals this year. These new investments have allowed Realty Income to increase its dividend by approximately 5% over the past year.
The company should have no problem pursuing its value-creating acquisitions. Realty Income estimates the total global addressable net lease market to be approximately $12 trillion. This should provide it with plenty of opportunities to make accretive acquisitions.
Combined with integrated rental growth, these transactions should allow Realty Income to increase its dividend at a steady pace. Add to that its high yield and it should also be able to produce attractive total returns, making it more than just an income-oriented investment.
A cornerstone of passive income
Realty Income has provided steadily growing dividend income to its investors for years. This is the type of business I want to help anchor my passive income, which is why I can’t seem to get enough of it in my portfolio. I plan to continue buying more stocks each month as I have the money to invest until I have built a more meaningful position.