Why Realty Income (O) is a Perfect Dividend Stock for Retirees

realty income

REIT is short for real estate investment trust. In short, a REIT lets interested individuals buy shares in an investment portfolio that consists of various kinds of real estate investments. Generally speaking, REITs are pretty specialized, presumably because that makes it much easier for the people running them to bring the relevant expertise and experience to bear. However, it is interesting to note that there are some REITs with a much more widespread focus, meaning that there are plenty of options for interested individuals. Of course, some REITs are much better-known than others, with an excellent example being Realty Income.

What Is Realty Income?

In short, Realty Income was founded in 1969, but it wasn’t listed on the New York Stock Exchange until 1994. Since that time, it has seen a massive expansion, with the result that it now owns close to $17 billion in real estate assets that generate more than one billion in annual revenue. However, one element has managed to remain constant, which is that Realty Income exists to provide its investors with dividends paid per month rather than the dividends paid per quarter that is more common among REITs.

Besides this, it is worth mentioning Realty Income’s business model. Generally speaking, the REIT is interested in commercial real estate properties that are rented out to commercial tenants. In most cases, these commercial real estate properties are freestanding buildings with good access as well as good visibility, both of which are factors that make them that much more attractive to their intended tenants. As for the tenants, Realty Income has a strong preference for retailers that sell non-discretionary products and services at low prices, with the result that it is very fond of drug stores, dollar stores, convenience stores, and the like. However, Realty Income does have other kinds of tenants as well, as shown by how it is involved in other industries to a lesser extent.

On the whole, Realty Income is a pretty conservative REIT in the sense that it is more focused on ensuring a stable dividend payout for its investors than on maximizing its profits as much as possible. This can be seen in how it prefers long-term tenants that are responsible for covering the taxes, the insurance, and the maintenance for the real estate properties that they are renting, thus insulating it to a considerable extent from the changes that can happen with such costs. Furthermore, this can be seen in how it seeks to maintain a capital structure that consists of two thirds equity and one third long-term debt with fixed interest rates, thus minimizing the potential for problems to come up because of its liabilities.

With that said, Realty Income does have plenty of potential for further growth. First, it is interested in increasing the size of its investment portfolio by snapping up more and more real estate properties that meet its investment criteria. Some of these real estate properties are purchased using cash. In contrast, the rest are financed using a mix of equity and credit as described earlier. On top of this, the rent for Realty Income’s leases are increased on a regular basis, with some being increased on a fixed rate, some being increased on a variable rate based on the tenant’s performance, and some being increased on a hybrid model that combines elements from both.

Why Is Realty Income an Excellent Choice for Dividend-Focused Retirees?

Combined, these elements make Realty Income an excellent choice for investors such as retirees who are focused on regular dividends rather than on other investment considerations. In part, this is because Realty Income is a very reliable payer of dividends who can be expected to remain so for the foreseeable future because of its conservative approach to business. However, it should also be noted that its monthly dividends rather than the much more common quarterly dividends is a huge selling point for a lot of people because it makes it much easier for them to draw up their budgets based on their expected dividends. Something that is possible for Realty Income to pay out because of how the long-term nature of its leases make for very stable revenue streams that can then be paid out.

However, there is one point that might concern interested individuals. As stated earlier, Realty Income specializes in retailers, which can be a huge concern for people who have been paying very close attention to the retail apocalypse that has been ongoing for years and years by this point in time. As such, whether people are willing to invest in Realty Income should depend on whether they believe that the realty apocalypse will hit its choice of tenants or not. There are those who believe that the retail apocalypse will spare no one. However, Realty Income’s choice of tenants have so far managed to remain less impacted than most of their counterparts. One of the reasons might be the non-discretionary nature of their products and services, which makes for relatively reliable demand for them. Another of the reasons might be the low prices charged by these retailers, which make it that much more difficult for online retailers with shipping costs to outcompete them on that particular point. Whatever the case, people should feel free to invest in Realty Income so long as they trust that said retailers will continue to perform well in spite of the so-called retail apocalypse.

Further Considerations

Ultimately, while Realty Income gets recommended by a lot of people out there, interested individuals should always look into it further before deciding to go ahead with an investment decision. They are the ones who understand their investing needs and priorities the best, meaning that they are the ones in the best position to decide whether Realty Income is right for them or not.


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