Should Realty Income Be the First Dividend Stock You Buy in November, Even if There's a Stock Market Sell-Off?
Key Points
Realty Income has a time-tested and risk-averse approach to generating income.
It has increased its distributions for a mind-boggling 116 consecutive quarters.
Rising interest rates and economic uncertainties are risks to watch, but Realty Income is positioned to succeed.
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If you're new to dividend investing, there are plenty of reasons why Realty Income (NYSE: O) should be the first stock you buy this month following Thursday's sell-off. There are also some potential pitfalls. You didn't think I was just going to sugarcoat it for you, did you?
Let's start with the case for Realty Income as a keystone species in any income-generating portfolio. I will also tackle some things to watch out for if you do decide it's the right buy for you.
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More than just a flavor of the month
One of the things that makes Realty Income stock unique is that it's one of the few companies to declare monthly payouts. This is convenient for those relying on the fixed income to cover monthly expenses. The incremental costs that Realty Income incurs are minimal in an age where most investments are held in brokerage accounts with electronic distributions.
More real estate investment trusts (REITs) and ETFs are going this route, but Realty Income wrote the playbook. It's been doling out monthly distributions for more than 56 years. Another long streak is its ability to increase those payouts. It has raised its dividend for 31 straight years -- and, get this -- 116 consecutive quarters.
The real reason to own Realty Income and collect its current yield of 5.5% is the health of its business. Tenants at Realty Income's 15,536 properties sign triple-net leases. The tenants take on property taxes, insurance, and maintenance costs. This gives Realty Income more visibility. It also helps that its largest tenants are in recession-resistant businesses, including supermarkets and convenience stores.
There are risks. Realty Income is down 6% over the past six months, more than offsetting the last six months of dividends. If interest rates continue to rise, REITs may remain under pressure as investors demand higher yields. There are also economic risks, even with Realty Income's conservative approach to filling its properties.
Realty Income remains my top pick among REITs to buy this month. It pays to go with Realty Income, just as it has for more than five decades of uninterrupted monthly distributions.
Should you buy stock in Realty Income right now?
Before you buy stock in Realty Income, consider this:
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Rick Munarriz 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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