Real estate is an age-old tried and proven asset class that many investors decide to put their hard-earned money into. Buying real estate requires upfront and oftentimes includes debt to cover the payments. This can also create additional risk for the investor, which means that they will be concentrated in one asset class and one bad tenant can create issues.
Real estate investment trusts (REITs) on the other hand provide great diversification allowing for smaller capital deployment, no debt required on the part of the investor, and they’re highly liquid.
The best in class with a high dividend yield of 4.1% is Realty Income (NYSE: O) which enjoys a Dividend Aristocrat status, a company that raised and distributed its dividend for 25-years consecutively. With this stock in the portfolio, investors will be well on their way to passive investments.
Properties and clients galore
Realty Income owns over 11,000 properties across the U.S., the U.K., and Spain covering over 1,000 clients, this commercial REIT is highly diversified. The list of top 20 clients is a who’s who list of successful global businesses guaranteeing income to this REIT.
O’s balance sheet carries an A3 credit rating by Moody’s representing the best credit rating in the REIT niche which should help dampen the impact of recent and future rate hikes.
The compound annual growth rate for the dividend amounts to 4.4% since 1994 and for 2021 they reported adjusted funds from operations was $3.59, which covers 120% of the $3 annual dividend. Finally, the company invested over $2.6 billion in 401 properties and development properties in 2021.
Technical analysis and predictions
The stock has been on a tear recently jumping up 14% from March, now trading above all daily Simple Moving Averages. Since the stock has had such a runup perhaps waiting for a better entry point for investors more inclined towards technical analysis could offer better long-term returns.
On Wall Street analysts give the stock a strong buy rating predicting that for the next 12-months the average price will be $76 which is only 2.51% above the current trading price of $74.14. Bullish analysts predict higher prices at $84 which could be reached in these times of higher volatility.
Investors are fearing inflation and a Federal Reserve (Fed) induced recession if they tighten the markets too quickly. Luckily companies like Realty hold down the fort in tough and good times throwing off passive income for patient investors.
If looking to build passive income streams the best opportunities are presented during market corrections or simply investing in high-quality stocks with a strong moat that have predictable cash flows, strong and consistent dividends, and transparency in doing business.
Canny investors never hold all of their eggs in one basket, therefore diversification is key.
Disclaimer: The content on this site should not be considered investment advice. Investing is speculative. When investing, your capital is at risk.