In This Article:
Key Points
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Realty Income is the largest net lease real estate investment trust.
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The company has a long history of increasing its dividend every quarter.
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The giant REIT has long been willing to experiment, something it continues to do to this day.
From a big-picture perspective, real estate investment trust (REIT) Realty Income (NYSE: O) isn't a complex business. As a landlord, it does exactly what you would do if you owned a rental property, just on a much larger scale. But there's one fact about Realty Income that you shouldn't ignore, especially now that the company has grown to be the net lease industry's 800-pound gorilla, at nearly four times the size of its next closest competitor.
Realty Income offers a lot of positives
What is there to like about Realty Income? A lot. For example, its dividend yield is 5.6% compared to the real estate investment trust average of roughly 4.1%. The dividend has been increased each year for 30 consecutive years, with quarterly increases over the last 110 quarters, and it has an investment grade rated balance sheet. These are just some of the reasons you might want to buy this high-quality REIT.
But there's one small problem. Given Realty Income's size, it takes a lot of investment activity to move the needle on the income statement. To be fair, the REIT's size and many business strengths generally allow it advantaged access to capital markets. A relatively low cost of capital means it can compete aggressively for transactions. For larger transactions, it's often the only net lease REIT large enough to handle a deal.
Still, Realty Income is a slow and steady tortoise. That's highlighted by the roughly 4.3% annualized dividend growth rate over the past three decades. That's faster than the historical growth rate of inflation, so the dividend's buying power is increasing over time. But you aren't going to brag about Realty Income at a dinner party. It is a foundational investment.
Realty Income's foundation includes innovation
That brings up one of the most important things to understand about Realty Income. It isn't just doing the same thing over and over again -- it's constantly trying new things with the goal of increasing the number of levers it can pull to grow. The big one recently was the move to start investing in Europe, a market in which Realty Income's net lease approach is still underutilized.
But that's hardly the only example. It also bought a casino, using its traditional net lease model. Casinos aren't the typical property type that Realty Income invests in. It has since made a debt investment in another casino, which highlights the REIT's recent move to offer loans in addition to owning property. So not only does Realty Income now have a new asset type to invest in, it can do so in two different ways.