It’s no secret that investing in real estate can be a great way to generate passive income. However, many investors don’t know this certainly Real estate investments generate passive income better than others.
The best properties for passive income are single-tenant properties secured by Triple Net Leases (NNN). This lease structure requires the tenant to cover building insurance, property taxes and maintenance costs. This means the landlord collects money very stable rental income.
Anyone can invest in NNN real estate if they know where to look. Real estate income (NYSE:O) is a leader in the ownership of these properties. The Real Estate Investment Trust (RIDING) owns over 15,000 properties in the US and Europe, secured by Net Leases. This strategic focus has allowed Realty Income to live up to its name and pay an unstoppable dividend.
A bankable source of income
Realty Income has made 646 consecutive payments monthly dividends since its inception several decades ago. The company went public in 1994 and has increased its dividend 124 times since then, including 106 consecutive quarters. The REIT has increased its dividend by an average of 4.3% per year since it went public about 30 years ago.
A large One factor for the overall stability of the dividend is the high-quality portfolio of net rental properties. The company has delivered positive earnings growth in 27 of the last 28 years, driven by rent increases and new acquisitions. The only bad year was during the depths of The financial crisis in 2009, when adjusted operating funds (FFO) dipped modestly. However, even during this period, it had the lowest operational and financial volatility among A-rated REITs for the year S&P 500.
The company complements its long-lasting portfolio with a conservative financial profile. Realty Income generated adjusted FFO of $2.8 billion, or $4.00 per share, last year. It paid off a little More than 75% of this cash is paid out to shareholders in the form of dividends. This allowed the company to retain a significant portion of its cash flow to finance new investments.
The REIT now has an elite balance sheet. It has an A-rated credit rating backed by a conservative Leverage ratio. This further increases financial flexibility.
Further growth is ahead
Realty Income’s dividend growth isn’t likely to stop anytime soon. The REIT expects to deliver annual adjusted FFO per share growth of 4% to 5% over the long term, roughly in line with its historical average. Rent increases and new investments are expected to continuously increase cash flow.
The company has a long growth path ahead of it. It appreciates that There are Approximately $4.7 trillion in U.S. commercial real estate that is eligible for and could be acquired under the traditional net lease structure Sale-leaseback transactions with owner-operators. These properties include freestanding retail, industrial, consumer-focused medical and existing data centers.
Realty Income sees an additional $700 million in emerging vertical net lease investments (data center development and gaming properties), further expanding its opportunity set. There is also another $2.6 trillion worth of net rental properties in the UK and another $5.9 trillion in the rest of developed Europe.
Realty Income has continued to expand its capabilities by adding new investment verticals to its portfolio. For example it made its first investment in the data center sector last November. The company acquired 80% equity in a joint venture that is building two 100% pre-released data centers with built-in expansion potential. The REIT also entered the market in several new European countries earlier this year as part of a sale-leaseback transaction with a sporting goods retailer Decathlon.
With a strong financial profile, Realty Income should Have no problem continue to acquire income-generating properties. The company plans to invest at least $2 billion in real estate acquisitions this year. In the meantime, it will opportunistically acquire additional net-lease REITs to further increase its size (Earlier this year, the company completed its $9.3 billion acquisition of Spirit Realty.) The company’s ever-growing portfolio will boost its cash flow and allow it to further increase its dividend.
As passive as it gets
Realty Income’s current dividend yield is around 6%. Put another way, every $1,000 invested in its stocks would generate about $60 in annual dividend income (about $5 per month). The more you invest, the more passive income you earn. The longer you hold, the more passive income you will receive as the REIT’s dividend should continue to increase. This makes real estate income an easy way to generate it truly passive income from real estate.
Should you invest $1,000 in Realty Income now?
Before you buy shares of Realty Income, consider the following:
The Motley Fool Stock Advisor The analyst team has just identified what they think this is The 10 best stocks so investors can buy it now… and Realty Income wasn’t one of them. The ten stocks that made the cut could deliver huge returns in the years to come.
Think about when Nvidia created this list on April 15, 2005… if you have $1,000 invested at the time of our recommendation, You would have $506,291!*
Stock Advisor provides investors with an easy-to-follow roadmap to success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks per month. The Stock Advisor has service more than quadrupled the return of the S&P 500 since 2002*.
See the 10 stocks ยป
*Stock Advisor returns from April 22, 2024
Matt DiLallo holds positions in Realty Income. The Motley Fool has positions in and recommends Realty Income. The Motley Fool has a disclosure policy.
The Secret to Passive Income Is Hidden in This Unstoppable Dividend Stock was originally published by The Motley Fool