How a $25,000 Realty Income Investment Could Compound Into Real Retirement Income
Key Points
Realty Income currently pays a high-yielding monthly dividend.
The REIT has steadily increased its dividend, and that trend should continue.
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Realty Income (NYSE: O) has been a compounding machine. The real estate investment trust (REIT) has delivered a 13.6% compound annual total return since its 1994 public market listing. A big driver has been its growing dividend. The REIT has raised its payment 135 times, growing it by a 4.1% compound annual growth rate.
The REIT pays a monthly dividend currently yielding 5%. With more dividend growth likely, a $25,000 investment could compound into real retirement income.
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An income compounding machine
Realty Income offers investors a high current income yield that should grow over time. At its current yield, a $25,000 investment would generate about $1,237.50 in annual dividend income. That income stream should steadily grow over the years, given the REIT's history and its stated mission of investing to "deliver dependable monthly dividends that increase over time." Here's a look at how much dividend income the REIT could deliver if it continues to grow its dividend at around its historical rate of 4.1%:
Chart by the author.
That chart lays out two scenarios. Under one assumption, the investor doesn't reinvest their dividends. This scenario would see the $25,000 investment generating nearly $4,000 in annual dividend income from growth alone within 30 years, boosting the yield on cost to nearly 16%. Under the second scenario, the investor reinvests their dividends at the current yield (around 5%). This would compound their income exponentially by year 30, when they'd be collecting over $58,000 in dividends each year.
While Realty Income's past success in growing its dividend is no guarantee it can continue growing its payout, let alone at its historical growth rate, it's in a strong position to do so. The REIT has a durable real estate portfolio secured by long-term net leases, a strong financial profile, and an expanding private capital ecosystem that's providing it with additional growth capital and investment opportunities. Add in the $14 trillion market opportunity Realty Income sees for investing in global net-lease real estate, and it has a long runway to continue growing its dividend. It has all the makings of an ideal retirement income investment.
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Matt DiLallo has positions in Realty Income. The Motley Fool has positions in and recommends Realty Income. The Motley Fool has a disclosure policy.
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