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Stocks with real estate exposure are always good buys because value for the same keeps appreciating with every passing year. Real estate stocks also pay out great dividends; therefore they are one of the first priorities when it comes to investing. So, would you not love to invest in a stock that is not only one of the leaders in this sector but also a dividend aristocrat? In addition to this, this stock is currently trading at an attractive price, making it a must-buy option if you are looking for some great returns. We are talking about the real estate investment trust (REIT), Realty Income (O ) here. Let us look at some of the reasons as to why it makes sense to buy this stock right away.

Diverse portfolio

One of the keys to success of Realty Income is that, it has a very diverse portfolio in different countries. Hence a slowdown in one of the economies is offset by the development in another. As of date, the trust owns close to 4,200 real estate properties, most of them commercial and has been paying out dividends for an awe-inspiring 69 consecutive quarters. The tenants who occupy the trust’s buildings are big names in their respective sectors. AMC Theatres (AMC ), Walmart (WMT ), Walgreen Boots Alliance (WBA ), Yum! Brands (YUM ), Advance Auto Parts (AAP ), Taco Bell (a unit of Yum Brands) etc. are some of the high-profile names in the tenant list of Realty Income.

As per laws, a real estate investment trust should pay out at least 90% of its profits as dividends to shareholders. In order to pay out such huge sums, Realty Income invests in huge commercial properties located in strategic areas, gives them out to some really big companies for a lease and uses the fee that these companies pay to give out to investors. Almost all tenants of Realty’s properties are retailers who have a huge brand name and enjoy immense reputation among customers.

It was during 1994 that the trust was registered as a publicly traded company. From then, it has increased its dividends a record 79 times, which includes the 69-quarter on the trot increases. It is probably the only REIT to do so. During the formative years, dividend per share was a paltry $0.90 per share. Today, it stands at $2.27 per share. With a dividend yield of 4.4% and with such high-profile tenants, the trust is only expected to grow bigger and better in the coming years. The following picture shows the history of dividend increases over the years.

Value to shareholders

Shareholders get to gain a lot from Realty Income as the trust is exposed to good profits and tenants who generate huge income year over year. Profit for the trust is measured by the spread or the difference between the rates at which Realty Income borrows money and the rate of return on the property that it leases out. Most of the times, there is a huge difference in these two rates, with the buying rate always being lesser than the return generating rate. Hence Realty Income, at any given point in time, has lots of profits in its kitty, to be distributed to the shareholders. It also sees additional revenues through the annual rent on the increase of its properties that are leased out. On an average, the rate of increase hovers around the range of 0.2 to 2% every year. Given the fact that almost all the tenants of Realty Income are high profile retailers who generate immense value for the property every year, the trust also increases the rent by a considerable rate. This additional income is also distributed to the investors.

Strength of commercial leases

Last but not the least, Realty Income’s major strength lies in the fact that it deals with commercial properties and not residential. In the case of the latter, leases are hardly for one or two years, whereas in the case of the former, leases range between 10 and 20 years. Maintenance costs are more for residential properties; hence Realty Income, which deals only with retailers, has a lot to gain as all the expenses related to maintenance are taken over by the tenants themselves.

Being a real estate investment trust, Realty Income is one of those stocks that you can invest in without any inhibitions, as the stock prices are set to soar in the coming years. Rise in property values, rental increases, annual growth rates of the trust and geographically diverse properties are some of the key strengths of Realty Income.

About the author:

We are a group of analysts exploring and analyzing different domains of business and writing reviews based on information available in public domain web portals. We do not hold any stock or investment position in any of the companies that we write for.