Beat the S&P 500 isn’t necessarily every investor’s goal. While you will earn higher returns that way, stocks that can beat popular benchmarks are riskier to hold. Retirees and people who are in the latter part of their careers typically don’t need to take on as much risk, which is why many of them are drawn to low-volatility stocks that offer strong dividend yields.
Realty Income (O 0.59%) is one of the top stocks that fulfills those two requirements. Its 5.29% yield is higher than most stocks, and a 0.77 beta indicates that it is less volatile than most stocks. While other financial stocks also have low volatility and high yields, there are some reasons to consider the real estate investment trust (REIT).
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Its diversified portfolio generates a predictable cash flow
Realty Income is a real estate juggernaut with a 98.9% occupancy rate across more than 15,000 properties. The cash flow comes from a mix of commercial and residential customers, giving it good diversification in any economic cycle.
It’s the 6th largest global REIT, and that positioning plus its portfolio comes with monthly dividends. Realty Income recently issued its 134th monthly dividend increase, raising its monthly payout by 0.2%. Overall, the REIT has grown its dividend at an average annual rate of 4.2% since 1994.
Many dividend investors carefully buy groups of stocks that result in monthly payouts. They will buy one dividend stock that gives money to investors in January, another that pays out in February, and a third stock that distributes dividends every March. The theory behind this strategy is that those same companies will issue dividends every three months, resulting in a monthly cash flow.
Realty Income makes it a lot simpler by offering monthly dividends to its shareholders. You can get passive income every month from a single stock.
Today’s Change
(-0.59%) $-0.37
Current Price
$61.84
Key Data Points
Market Cap
$58B
Day’s Range
$61.66 – $62.22
52wk Range
$50.71 – $67.94
Volume
52K
Avg Vol
6.6M
Gross Margin
48.73%
Dividend Yield
5.20%
A star-studded client list sets the foundation
Not only does Realty Income have many income streams, but its clients are some of the largest companies in their respective industries. Dollar General, Life Time, FedEx, and Walmart are some of Realty Income’s largest customers.
These companies make money hand over fist and need their physical locations to maintain their businesses. Realty Income’s customers are very unlikely to give up their property locations and will continue to pay rent. The fact that Realty Income has these types of relationships also makes it easier to attract additional high-profile customers since they know Realty Income is a reliable company.
More than 20% of Realty Income’s portfolio is in the grocery and convenience store industries. These industries are vital and attract plenty of foot traffic and profits, which makes it easier for Realty Income to keep tenants. It’s normal for tenants to sign 10 to 20-year leases. That helps Realty Income generate cash flow more reliably than most financial stocks.
Marc Guberti has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Realty Income and Walmart. The Motley Fool recommends FedEx. The Motley Fool has a disclosure policy.