Realty Income Has Outperformed the S&P 500 in 11 of 13 Stock Market Corrections Since 1994. Here's Why I'd Hold It Forever.

Since Realty Income's (NYSE:O) public market listing in 1994, the stock market has endured 13 sell-offs of 10% or more. The real estate investment trust (REIT) has outperformed the market in 11 of those corrections. Its average decline during these sell-offs is only 2.6%, much less than the S&P 500's average drawdown of 22.6%.

The REIT's significantly lower volatility is one of the many reasons why it's becoming a core holding in my portfolio.

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Build with resilience in mind

Realty Income has a very low-risk business model. The REIT owns an increasingly diversified portfolio of high-quality properties secured by long-term net leases with many of the world's leading companies. It owns about 15,600 properties (retail, industrial, gaming, and data centers) leased to around 1,800 clients across more than 90 industries. Most of its properties are leased to non-discretionary, service-oriented businesses. As a result, these properties produce very stable rental income throughout the economic cycle.

The REIT also has a fortress financial profile. It has a strong, investment-grade balance sheet (A3/A-/A credit rating). It also has a conservative dividend payout ratio (less than 75% of its adjusted funds from operations). This gives Realty Income the financial flexibility to continue investing in expanding its portfolio and growing its dividend during economic downturns. It has increased its dividend 136 times since 1994, including for the last 116 straight quarters, growing its monthly dividend at a 4.1% compound annual rate.

The dividend helps drive returns and reduce volatility

The company's high-yielding, steadily rising monthly dividend (a 5% historical average yield) has contributed significantly to its total returns. Since 1994, 38% of its total return has come from the dividend (including reinvestment). That compares to just 10% of the S&P 500's total return during that period.

This bankable income stream has made the REIT's share price much less volatile than the average stock. It currently has a beta of 0.5, half the beta of the S&P 500. That suggests that if the S&P 500 drops 10%, Realty Income's stock would likely slide only 5%. Despite its higher yield, the REIT has historically produced strong total returns. Its cumulative total return since its 1994 listing is 5,430% (as of the end of June), nearly double the S&P 500's return. The REIT offers equity-like returns with bond-like income and volatility, an ideal combination for a foundational holding.

A forever holding for me

Realty Income offers a truly rare combination. It provides income, volatility resilience, and long-term outperformance. While all this doesn't guarantee the REIT will outperform the S&P 500 in the next market downturn, its historical record and current strong positioning increase the likelihood it will remain more resilient in future downturns. That's why I'm making Realty Income a foundational holding in my portfolio to support my future financial needs.

Matt DiLallo has positions in Realty Income. The Motley Fool has positions in and recommends Realty Income. The Motley Fool has a disclosure policy.