Historically, real estate investment trusts (REITs) yield competitive returns because of high, steady dividend income and long-term capital appreciation. REITs are also an ideal addition to your portfolio when aiming to achieve diversification — but which do you choose? Hundreds of REITs exist, so which are the safest?
If you’re someone who invests for the long haul, Realty Income is one to hold for the next decade and beyond. This REIT is an industry leader that offers a reliable dividend and, when added to your portfolio, can help shield against the impact of an economic downturn.
What Does Realty Income Do?
Realty Income (NASDAQ:O) specializes in single-tenant properties leased under arrangements where the tenant absorbs most of the costs, including insurance, maintenance, and taxes. Realty Income can focus on collecting rent and growing its portfolio instead of worrying about things like property lawn maintenance or local taxes. These leases typically last for 7 to 10 years and contain automatic escalators.
Although any one property under this net lease approach is high-risk, the risk is relatively small and operating costs are extremely low across a large portfolio
For this commitment to make sense, Realty Income chooses companies that perform well during all phases of the economic cycle. For example, Realty Income’s typical tenants are dollar stores, drugstores, grocery stores, and convenience stores. These are known as high-defensive businesses — meaning they’re less sensitive to the overall economy, which many investors have on their minds as we head into the second half of 2022.
Realty Income’s portfolio includes over 11,200 global properties across 70 industries. The company continues to lease properties to industrial and retail clients with a service, low-price point component, or non-discretionary component. Management remains confident that it can successfully operate in various economic environments.
Why Realty Income Thrives During Times of Economic Hardship
As we approach a possible recession, certain businesses will face greater challenges than others — especially within the retail sector. However, other businesses thrive, including discount stores and retailers that sell consumer staples.
The above tenants will continue to benefit from steady sales because certain items will remain in high demand. Consumers will still buy groceries, toothpaste, deodorant, pens, and other small everyday items these stores sell. Many tenants will also remain competitive in response to rising online sales.
Reasons To Invest in Realty Income
Realty income is the largest player in the net lease REIT space and has a market cap over $40 billion — which leads to many advantages.
Although massive growth is not likely, the company has cemented a dominant position in the industry. Few other REITs come close, allowing Realty Income to take on deals most others in the industry cannot handle. An example of a big deal Realty Income can scoop up is its $1.7 billion acquisition of a casino recently.
That said, O shares have increased over 30% in the past five years and more than 4% in the past 12 months. Unlike most stocks, which have taken a beating this year, Realty Income is only down a little more than 3% year to date. This strong growth is expected to continue, making Realty Income one of the safest high-yield opportunities in the market.
Realty Income is also known for its reliable dividend, which is 4.29%, a monthly payout of $0.246 per share. COVID-19 tested many businesses, and most REITs were forced to cut their dividends during the pandemic. In contrast, Realty Income was able to increase its payout three times in 2020.
When looking at the company’s history of dividend increases, this isn’t overly surprising — it’s why Realty Income is one of the original Dividend Aristocrats. The company has increased its monthly dividend annually for 27 consecutive years.
Is Realty Income a Buy?
As of this writing, shares of O are up from its 52-week low of $62.28 and down from its 52-week high of $75.28.
As the U.S. economy slows and the possibility of another recession looms, it’s recommended that you invest in REITs that will help recession-proof your portfolio — Realty Income is one of them.
This REIT, along with W.P. Carey (NASDAQ:WPC) and National Retail Properties (NASDAQ:NNN), weathered this type of storm before, continuing to reward investors during times of economic downturn. The difference with Realty Income? It is the leader of the pack. As this REIT makes more big purchases, it will further separate itself from its peers.
Based on Realty Income’s portfolio performance and diversification, as well as this REIT’s dividend history, it is a wise buy at today’s discounted price.