Congress created real estate investment trusts (REITs) in the 1960s to allow anyone to invest in income-generating commercial properties. REITs must pay dividends to maintain their tax benefits.
But one REIT stands out from all others in its ability to generate permanent passive income. real estate income (O -0.11%)Let’s take a closer look at why this is the best way to collect things that last. unearned income from real estate.
Incredible dividend performance
Real estate income recently declared 626 times in a row monthly dividendConsidering there have been some difficult real estate markets over the years, this is amazing durability. It’s also worth pointing out that Realty Income is one of the few companies that pays dividends monthly, making it ideal for anyone looking to earn a passive income.
of REIT Take things the next step by consistently improving Dividend paymentSince going public, the company has raised 116 rounds to investors, including the last 99 consecutive quarters. Overall, Realty Income has increased its dividend for over 25 years in a row, dividend aristocratWe are one of 65 companies to win this award, including one of only three REITs. Realty Income has achieved 4.4% annual dividend growth since his 1994.
A foundation that continues to grow
Realty Income should be able to continue increasing its dividend in the future. A big driver is a durable real estate portfolio. The REIT owns approximately 11,500 free-standing commercial properties, leased to approximately 1,125 tenants in 72 industries in the US and Europe. About 94% of rental income comes from tenants in industries that have withstood the recession and are insulated from the pressures of e-commerce. Its top tenants include grocery stores, convenience stores, restaurants, pharmacies and industrial companies.
The company utilizes triple net leases, which allow tenants to cover variable costs such as maintenance, building insurance and property taxes. These leases typically feature a fixed or inflation-linked annual rate increase. Meanwhile, the company focuses on renting to financially stable tenants, with 43% of its rent coming from tenants with an investment grade credit rating. With these features, property income should provide a very stable rental income and rise steadily over time.
REITs pay out modest amounts of income to shareholders through dividends (approximately 75% of adjusted funds from operations). This provides a dividend cushion and allows you to keep cash to reinvest in income-generating property acquisitions. Realty Income also has a low leverage ratio and A-rated credit, making him one of the strongest balance sheets in the REIT sector. Others allow him to borrow money at lower costs and on more favorable terms than REITs, giving him more flexibility in acquisitions.
Realty Income believes there is great opportunity to continue expanding its real estate portfolio in the future. The company’s core global market is estimated to be about $12 trillion in owner-occupied real estate, making for a huge total market size. The REIT expects to make more than $6 billion in acquisitions this year, which will boost rental income and allow it to continue increasing dividends.
REITs are also enhancing and diversifying their portfolios to reduce risk. It has reduced its exposure to certain segments of the retail sector, spun off those properties and exited the office market. Orion Office REITDuring that time, we expanded our industrial and warehousing portfolio and expanded into the gaming industry. In addition, Realty Income is expanding geographically, making its first continental European acquisition last year. It has also significantly expanded its scale through spectacular mergers, most recently completing the VEREIT transaction last year. These moves have further improved the long-term sustainability of Realty Income’s rental income and dividends.
Built to generate lasting passive income
Realty Income has provided investors with a steadily increasing passive income stream for decades. REITs should be able to continue generating passive income in the years to come thanks to their increasingly durable portfolios and top-notch financial profiles. As such, it stands out as a top real estate stock for those seeking passive income that can stand the test of time.