The Dividend Stock That Keeps Raising Its Payout No Matter What the Market Does

Realty Income (NYSE: O) has been one of the best dividend stocks for decades.

The real estate investment trust (REIT) literally calls itself the "Monthly Dividend Company," so its dividend is part of its brand and is in its DNA.

That commitment has resulted in 32 consecutive years of raising its dividend, through all different types of markets, including recessions, pandemics, market crashes, and the current real estate downturn.

REITs are mandated by federal law to provide 90% of their taxable income in dividends in exchange for certain tax advantages, so REITs, in general, often produce significant dividend income. But because of the volatile nature of the real estate market, REITs are subject to changing market conditions, interest rates, inflation, and other macroeconomic factors. That's why it is difficult for many of them to sustain their dividends, let alone raise them, every year.

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Realty Income is one of the few exceptions as one of only three REITs that have increased their dividends at least annually for more than 25 years in a row.

Realty Income pays a dividend yielding 5.26%

Realty Income is also unique in that it pays out a monthly dividend. Of the entire universe of dividend-paying stocks, there are only a little more than 80 stocks that distribute dividends monthly.

In March, Realty Income raised its dividend for the 134th time since it became a public company in 1994, boosting it to $0.2705 from $0.27. It has an annual payout of $3.25 per share at a higher-than-average yield of 5.26%.

So, if you owned $1,000 worth of Realty Income stock, that would currently buy you about 16 shares. With each share paying out $3.25 in dividends, you would have $52 in dividend income per year.

If you reinvested the dividend into the stock, your return over the past year would increase from 6.1% to 11.9% -- almost doubling it. Going back to its initial public offering (IPO) in 1994, Realty Income has posted an average annualized return of 8.9%, and with the dividend reinvested, that increases to an average annualized return of 15.7% as of April 1.

32 years and counting of dividend raises

So what is it about Realty Income that allows it to raise its dividend more than most other REITs?

It boils down to its strategy. Realty Income's portfolio consists mostly of single-lease tenants, meaning they are big box stores or commercial tenants that rent the entire building, so they are often larger, more stable tenants.

The REIT also seeks out long-term leases of 10 to 20 years, adding to that stability. In addition, its portfolio is made up of companies that have a "low-price point component" to their business, which indicates that they can operate in any economic environment, particularly a downturn. These are typically the type of stores that people go to every day, like grocery stores, pharmacies, discount stores, etc.

It also focuses on triple-net leases, where the tenant pays a lower base rent but is responsible for taxes, maintenance, insurance, and other operational costs. That shields Realty Income from rising costs for those expenses.

This disciplined strategy has worked for 32 years and should continue to deliver dividends for investors.

Dave Kovaleski has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Realty Income. The Motley Fool has a disclosure policy.