Purchasing Shares of Realty Income Corporation Stands to Secure Your Financial Future?
Certain iconic dividend stocks capture the interest of the investing community, and one such name is Realty Income (-0.83%). It goes by the moniker "The Monthly Dividend Company," aiming to resonate with those who use its consistent monthly payouts to manage their daily expenses.
Dividends serve as the primary incentive for many Realty Income shareholders, but they undervalue the stock's potential to generate life-changing wealth. Since its inception in 1994, Realty Income's accumulative returns have surpassed the 5,000% mark, significantly outpacing the S&P 500's performance during that period.
Could Realty Income still set you up financially for the long haul? I believe so, but strategic planning is crucial to maximize the stock's potential. Here's what you need to know to leverage Realty Income for wealth creation:
The secret to unleashing Realty Income's full potential
Realty Income is a real estate investment trust (REIT), which acquires and leases properties. This company specializes in net lease retail REITs, focusing on single-tenant properties, including grocery stores, eateries, gas stations, and other popular hangouts.
REITs are legally obligated to distribute at least 90% of their taxable income to shareholders, which normally makes them an excellent source of dividends. Realty Income currently offers a competitive 5.5% dividend yield, with the management increasing the dividends for an uninterrupted 31-year stretch—every year since its IPO.
The dividends, more specifically, reinvesting the dividends, are the key to unlocking the stock's full potential. Reinvested dividends purchase additional shares, which generate dividends themselves. This creates a self-sustaining "dividend snowball" that grows more substantial and rapid as it rolls along.
Three factors make Realty Income ideal for reinvesting dividends:
- Its high initial dividend yield.
- The dividend is paid every month, enhancing compounding frequency.
- The dividend has steadily increased (108 consecutive quarterly boosts).
Below, you can see the difference between Realty Income's returns from price appreciation alone and total returns:
Realty Income can establish financial stability for an investor, but only if the dividends are reinvested and time is allowed for the dividend snowball to grow sufficiently.
A consideration you might not have thought about
There's a catch that's essential to know:
For U.S. investors, qualified dividends are subject to a tax rate between 0% and 20% (depending on income). However, most REITs, such as Realty Income, offer predominantly unqualified dividends, which are taxed as regular income instead. This means you'll pay the full tax rate applicable to your tax bracket, which could reach as high as 37% in the United States.
Taxes are often ignored during the early stages of investing but can amount to thousands of dollars annually as your investments grow. To build your dividend snowball with Realty Income, consider investing through a tax-advantaged account, such as a Roth IRA.
Non-U.S. investors or those uncertain about how tax laws might impact their finances should consult a tax professional.
Can Realty Income's dividend growth continue?
To leverage Realty Income (as part of a well-diversified portfolio) to establish financial security, follow this strategy: invest consistently in Realty Income, hold the stock, and reinvest the dividends.
However, this strategy only works if Realty Income continues to grow. With over 15,000 properties in the United States, Europe, and the United Kingdom, it's one of the largest REITs on the market. Companies can leverage debt or increase their dividend payout ratio to boost the dividend temporarily. Over time, though, the company's underlying growth ultimately determines the dividend.
Realty Income's dividend remains solid, with a payout ratio of 75%. Over its history, the company has increased its dividend annually by an average of 4.3%. In search of growth, the company has expanded into new property markets, such as industrial properties, data centers, gaming properties, and more.
While new ventures can be risky, Realty Income's strong track record should instill investor confidence until it's proven otherwise. Analysts forecast a 3%–4% annual growth rate for the business over the next three to five years. A sustainable payout ratio and likely dividend growth ahead suggest investors can continue to build their dividend snowballs with Realty Income stock.
To further grow your wealth with Realty Income, you might want to consider investing a portion of your money beyond the initial investment. This strategy, known as dollar-cost averaging, can help mitigate the impact of market volatility.
Moreover, it's essential to review and adjust your investment strategy periodically. Market conditions change, and so should your portfolio to ensure it continues to align with your financial goals. Regularly reviewing your investment strategy can help you make informed decisions and capitalize on potential opportunities.
