Real estate investing can be very lucrative. However, even though real estate income is passive, it often takes a lot of work to make money managing property investments. This can make real estate investing stressful for those who don’t have a lot of time.
A very comfortable way to make money in real estate is investing Realty income (O -0.22%). Real Estate Investment Trust (REIT) has a very sustainable business model, which enables it to generate continuously increasing rental income. This allows REITs to pay attractive and growing monthly dividends, making them great for those looking to really generate income. Passive income from real estate.
Built to reduce stress
Realty Income has a very low risk business model. REITs focus on investing in freestanding properties for rent in industries resilient to economic downturns and e-commerce pressures. These properties include grocery stores, pharmacies, convenience stores, warehouses, and light manufacturing facilities. The Company leases those buildings to credit-eligible tenants under long-term triple net agreements (NNN) which typically have annual rental rate escalators. That lease structure requires that the tenant pay maintenance, building insurance, and real estate taxes. As a result, Realty Income collects steadily increasing rental income from its real estate portfolio.
This enables REITs to make attractive payouts Monthly dividend. Realty Income currently offers a Dividend yield About 5%, which means every $1,000 invested in a REIT should generate about $50 of annual passive income.
Realty Income pays out about 75% of its quarterly cash flow to investors through dividends. This enables the company to keep a portion of its cash to help fund new real estate investments. This complements a conservative approach with a high level of balance sheet. Realty Income has an A-rated credit, giving it one of the strongest financial profiles in the REIT sector. Investors can sleep better at night knowing that realty income is on a rock-solid financial footing.
Reliable returns with low volatility
A conservative approach to realty income helps drive more stable results. The company has delivered positive earnings growth in 26 of its 27 years as a public company, the only outlier being in the depths of the financial crisis in 2009. It has grown cash flow per share at a compound annual rate of more than 5%. After its public market listing in 1994. That has allowed it to increase its dividend each year — including 102 straight quarters — while increasing the payout at a 4.4% compound annual rate. The combination of that income and earnings growth has enabled Realty Income to deliver a 14.6% annualized total return to its investors.
The company’s extremely stable growth profile enables it to generate attractive total returns with much lower volatility than other stocks:
Image source: Realty Income Investor Relations presentation.
As that slideshow shows, the company has been one of the least volatile stocks S&P 500. This makes it a very low-stress investment, especially during more turbulent times. Its shares will hold value much better than other stocks.
The company has taken steps to reduce risk by diversifying its portfolio in recent years. REITs have expanded into many new asset types and markets to de-risk the retail sector. Recent investments have included properties in the gaming, consumer-focused healthcare, and vertical farming sectors. It has also expanded internationally, acquiring properties in the UK, Spain and Italy. These deals are helping to open up new opportunities to diversify and expand its revenue streams.
Relax with this REIT
Realty Income has become a great real estate investment over the years. REITs pay attractive and steadily growing dividends. This has helped drive strong total returns with much lower volatility than other investments. It’s an almost stress-less way to invest in real estate.