Realty Income Has Raised Its Dividend Every Year Since Its 1994 IPO. Here Are 3 Reasons I'd Buy It and Never Sell.

A battle-tested dividend is easier to trust. Realty Income (NYSE: O) went public in 1994. Since then, the company has raised its dividend every year, despite multiple recessions, fluctuating interest rates, and even a global pandemic.

That past doesn't guarantee a bright future, but it does underline the strong business behind one of the world's leading real estate investment trusts (REITs). Here are three reasons why I'd be comfortable buying and holding the stock for the long haul.

1. Dependable monthly income

Most people probably buy Realty Income for its dividend, so let's start there. The company has declared 674 consecutive monthly dividends. It's one of the few stocks that pay you monthly, and the company has even become famous for it.

More importantly, the dividend seems well covered by Realty Income's financials. The current per-share dividend totals $3.25 annually, or about 73% of the company's guided adjusted funds from operations for this year.

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2. The business minimizes risk by design

Realty Income owns 15,558 properties worldwide, and no tenant represents more than 3.3% of the company's rental income. Just like your stock portfolio, diversification spreads risk. Additionally, Realty Income uses net leases, which puts expenses such as taxes, insurance, and property maintenance on the tenant.

As a result, the business has very predictable costs and generates steady recurring revenue. Realty Income's dividend has held up, even when stress-tested by catastrophic events such as the COVID-19 pandemic. That should give investors confidence in management's ability to navigate future adversity.

3. The dividend produces powerful long-term returns

It's tempting to dismiss Realty Income because the business doesn't grow very fast -- just low- to mid-single-digit growth -- and pays a generous dividend with a 5.2% yield. And, indeed, the price appreciation isn't where the stock delivers most of its value.

But reinvesting those dividends year after year can add up to big things in the long run. Realty Income's stock price has appreciated by 1,370% since the company's IPO. That's not enough to match the S&P 500 index.

Factor in dividends, and the math changes dramatically. In terms of total returns, Realty Income has returned a staggering 10,000%. In other words, nearly three-quarters of the wealth shareholders have received from Realty Income has been from taking that dividend and buying more shares with it.

Of course, those shares also pay dividends, which quietly creates another compounding effect that can make a huge difference over a few decades. There's no reason Realty Income can't continue to win for patient investors who recognize that the boring dividend is what really delivers the results.

Justin Pope 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.