Realty Income (NYSE: O) has long been a top stock to own among dividend investors.
The real estate investment trust (REIT) has several qualities that almost any income investor would want in a dividend stock. It has a recession-proof business model because it operates through triple-net leases, meaning its tenants pay for insurance, property taxes, and maintenance. It also generally leases its properties to stable recession-proof retailers like convenience stores and drugstores. Among the company's top tenants are Walgreens and 7-Eleven. It operates in eight countries, including the U.S. and several in Europe, giving it geographical diversity and resilience.
The company also has a long history of raising its dividend for 30 years in a row, and it is one of the few dividend stocks to pay a monthly dividend, giving investors a more frequent income stream.
Finally, Realty Income also offers a high dividend yield of 5.4%.
But can Realty Income make you a millionaire? Let's take a look at what the stock has to offer and how it could get you there.
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Realty Income today
Realty Income is fresh off its third-quarter earnings report, and revenue was boosted by its acquisition of Spirit Realty a year ago.
Revenue rose 28.1% in the quarter (ended Sept. 30) to $1.33 billion, and it reported strong growth in net income, up 12% to $261.8 million. The closely watched figure of adjusted funds from operations (AFFO) was up from $721.4 million to $915.6 million. But on a per-share basis, it only crept up from $1.02 to $1.05 due to share dilution from the acquisition. The REIT also sold 17 million shares in an at-the-market offering to raise $968.7 million.
Realty Income just issued its 108th consecutive quarterly dividend increase.
The stock got off to an inauspicious start in the Trump era as real estate stocks fell broadly and Treasury yields rose due to anticipated deficit spending and the potential inflationary impact of tariffs. Investors have now scaled back expectations for the Federal funds rate to come down, which could put pressure on REITs like Realty Income.
Dividend stocks compete with bonds for investment dollars, so if bond yields go up, investors are likely to sell REITs like Realty Income and rotate into fixed income. Additionally, higher interest rates are a challenge for Realty Income because the company borrows money to buy properties, and the higher the interest rate is, the higher its interest expense would be and the more it would pay in borrowing costs. Higher interest rates also make it harder for the company to refinance its debt.
Can Realty Income stock make you a millionaire?
Realty Income has a reliable business model and a long track record of delivering growth through acquiring acquiring companies like Spirit Realty and buying properties. The company, which owns more than 15,000 properties, has plenty of room for growth in front of it as it estimates a $4.7 trillion net lease addressable market in the U.S.
Between dividends and AFFO growth, Realty Income has historically returned 11% a year. At that growth rate, you could become a millionaire with enough time and enough of an initial investment.
For example, if you started with $100,000 and earned an 11% compound annual growth rate, you would have $1 million after 22 years. That might be a long time, but Realty Income has one of the most consistent and reliable growth models of any stock available.
Realty Income might not offer the growth potential of a tech stock, but for patient, long-term investors, it can make you a millionaire.
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Jeremy Bowman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Realty Income. The Motley Fool has a disclosure policy.
