If you are a conservative investor who prefers to buy the biggest and best stocks in a sector, then you'll want to own Realty Income (NYSE: O) . Despite a recent rally, the share price is still reasonably attractive -- at least for now. That's why you might want to jump on Realty Income today, because tomorrow, it might not be as desirable an income stock.
Here are three reasons to buy this giant net lease real estate investment trust (REIT) before you miss the chance.
1. Realty Income is the big fish in its market sector
Realty Income has a market cap of $53 billion. The next closest competitor has a market cap of just under $13 billion. That means that Realty Income is more than four times the size of its top competitor in the net lease REIT sector . (A net lease requires tenants to pay for most property-level operating costs.) But the size advantage goes well beyond market cap, given that Realty Income owns a shockingly large 15,400 properties.
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Being so big comes with some negatives. Most notable is that Realty Income has to buy a lot of properties (or a small number of very large properties) to move the needle on the top and bottom lines. But there are also material advantages to being so much bigger than the competition.
For starters, Realty Income has the heft to take on big deals that others couldn't. That includes everything from giant single properties (like a casino) to portfolios of assets (such as a European grocery store selling a dozen locations at one time) to buying entire companies (effectively acting as an industry consolidator). All are examples of actions Realty Income has taken in recent years. But being big also gives Realty Income greater access to capital markets, which is further aided by its investment grade rated balance sheet . Cheaper access to money makes it easier for Realty Income to ink profitable deals.
2. Realty Income has many ways to grow
A lot of net lease REITs are highly focused on one property type or region. Realty Income's approach is a little different. While some 70% or so of its rent roll comes from retail properties, 17% is classified as non-retail, with the rest listed as "other." For starters, single-tenant retail properties are fairly liquid properties. That makes them easy to buy and sell. And well-located properties will probably find new tenants fairly quickly. So the bulk of the portfolio is in a good space where acquisitions are still an option.
Then there are the non-retail assets, which are mostly industrial properties. Those can be a bit trickier to trade, but they give Realty Income another avenue for growth. And, given the rise in interest rates , Realty Income can provide an important source of capital to property-owning businesses that don't want to issue debt. The other category is a hodgepodge, including vineyards and casinos, the latter of which is an area where more acquisitions could be an option. Then there's Realty Income's push into data centers, a new area that is experiencing material growth. So this is not a one-trick pony within the net lease space.
Layered on top of the property type diversification is the company's geographic reach, which spans across the pond to Europe. Net leases are fairly new in Europe and there isn't a huge amount of competition, so it offers material growth prospects over the long term. Right now, meanwhile, Realty Income is also providing debt financing to select partners. This generally comes with higher returns and, importantly, can help to solidify tenant relationships.
Overall, despite Realty Income's size, there's no shortage of growth levers for the company to pull.
3. Realty Income has an impressive dividend
Realty Income's dividend yield is just over 5%. That's attractive on an absolute level, given that the S&P 500 's yield is a scant 1.2%. It's also notably higher than the average REIT's nearly 4% yield, using the Vanguard Real Estate Index ETF (NYSEMKT: VNQ) as an industry proxy. To be fair, Realty Income's stock has been rising of late, so the yield isn't as attractive as it was just a few months ago. That makes buying now, and not waiting around, all the more important.
But the dividend is impressive for another reason. Realty Income has increased the dividend payment every year for 29 consecutive years. That's not the longest streak in the net lease space, but it is still a very impressive number that proves the company places a high priority on returning value to shareholders via a growing dividend. Then there's the frequency of the dividend payment, which is monthly. Owning Realty Income is almost like collecting a paycheck, including regular annual pay raises.
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If you are trying to live off the income your portfolio generates , Realty Income's dividend should be very attractive to you.
Realty Income is a strong all-around dividend choice
There's no such thing as a perfect stock, and Realty Income certainly has some shortcomings. One to keep in mind is that the REIT, given its size, can only grow slowly over time. But, taking into consideration the lofty yield, that shouldn't be a big problem for most income investors. At the end of the day, Realty Income is really a foundational investment on which you can layer faster-growing and riskier stocks. That said, given the recent run-up in the shares, you might want to add it to your portfolio now before more investors warm up to the long-term appeal of this industry giant.
Reuben Gregg Brewer has positions in Realty Income. The Motley Fool has positions in and recommends Realty Income and Vanguard Real Estate ETF. The Motley Fool has a disclosure policy .
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