Why I Think the Best Dividend Stock Isn’t a Tech Name: It’s Realty Income
There are technology stocks that pay dividends, and I own some. But it is a competitive industry with fast-changing trends. If you are looking for a great dividend stock to buy and hold, you’ll be better off building your foundation around a boring, reliable, high-yield business like Realty Income (O +0.29%). Only, this real estate investment trust (REIT) is likely to be more innovative than you think. Here’s why you may want to buy this 5.1% yielding landlord right now.
Realty Income is a foundational dividend investment
Technology stocks can be volatile. I know, I own International Business Machines (IBM -1.34%) and Texas Instruments (TXN -2.96%). They are both reliable dividend stocks, but Wall Street’s mood can shift wildly at times. Earlier this year, IBM fell 25% in a single day! I’m not selling this 100-year-old business anytime soon, but I’m glad I own boring and reliable Realty Income beside these tech names to provide some consistency to my portfolio.
Image source: Getty Images.
Don’t underestimate the value of a high-yield dividend tortoise when you build an income portfolio. With 31 annual dividend increases behind it and a rock-solid business, I know I can count on that 5.1% yield to keep being paid. Note, too, that the 5.1% yield gets me halfway to the 10% return most investors expect from the market over time. All the REIT needs to do is grow in the low- to mid-single digits, and I’m a happy camper.
Realty Income is changing with the times
What’s interesting is that Realty Income is far more innovative than you may think, given its industry. Leasing out properties seems pretty mundane, and it is. But the company has evolved a lot over time. For example, it started out investing mainly in the U.S. market. Seeing an opportunity in Europe, however, it now generates around 20% of revenues from across the pond.
The majority of the REIT’s revenues are generated from single-tenant retail properties (roughly 80%). But it also has exposure to other sectors, including industrial properties, casinos, and, wait for it, data centers. Realty Income uses the net lease approach, which means tenants are responsible for most property-level expenses. Its leases also tend to be long-term. The company has a fairly risk-averse business model. But the move into casinos and data centers highlights management’s willingness to lean into new opportunities. And they add diversification to the portfolio, which contains over 15,500 properties.
Today’s Change
(0.29%) $0.18
Current Price
$61.98
Key Data Points
Market Cap
Day’s Range
$61.80 – $62.20
52wk Range
$55.86 – $67.94
Volume
3.7M
Avg Vol
5.8M
Gross Margin
50.82%
Dividend Yield
5.23%
More recently, Realty Income has begun making debt investments and has created a fee-based asset management service for institutional clients. Both of these moves use the tools the company already has in-house, but expand the business in new directions. The high yield and reliable dividend make it appear like Realty Income is a boring, sleeper of a business. But this dividend stock is anything but boring when you dig a little deeper into the story.
Realty Income won’t keep you up at night
That said, despite Realty Income’s successful efforts at modernizing its business to keep pace with the world around it, it is not the type of investment that will leave you with sleepless nights. Maintaining and growing the dividend is a core goal for management, which has trademarked the nickname “The Monthly Dividend Company.” That speaks to the dividend’s frequency and highlights its primacy as a corporate goal.
I’m not suggesting that you avoid dividend-paying tech stocks. After all, I own some myself. But I have built those more growth-oriented positions atop the reliable dividend foundation provided by Realty Income. And I’m confident that this innovative REIT, despite being a bit of an income tortoise, will continue to position itself for long-term success. Slow-and-steady high-yielders like Realty Income should have a prominent place in every dividend portfolio.
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