Want to Make Passive Income? Buy This Dividend Powerhouse and Never Look Back.

Realty Income (NYSE: O) has been a powerful passive income producer over the years. The real estate investment trust (REIT) has increased its monthly dividend 132 times since its public market listing in 1994. The landlord has hiked its payout by 259% over that period (a 4.2% compound annual growth rate), paying out a cumulative $17.6 billion in dividends over the past three decades.

The REIT's high-yielding (more than 5.5% current yield) and steadily rising monthly dividend make it an ideal investment for those seeking to generate passive income. Here's why income-seeking investors should buy shares and never look back.

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A higher yield the longer you hold

Realty Income has historically offered a high current yield, averaging in the mid-single digits. That has allowed investors to lock in a lucrative income stream on any new investment.

For example, an investor who bought 100 shares at the end of 2014 would have paid about $4,771 for those shares. At the time, Realty Income's dividend yield was around 4.2%. This yield implies that the investment would have generated around $220 in annual dividend income at the then-current payment rate, or approximately $18.33 per month.

The payment rate has increased steadily over the past decade, rising 47% overall. As a result, the investor is now collecting significantly more dividend income on their initial investment. These initial 100 shares would generate about $323 of dividend income each year (roughly $26.92 per month) at the current payment rate. That pushes the yield on this investor's cost basis up to 6.8%.

Built to continue paying a growing dividend

Realty Income is well-positioned to continue increasing its high-yielding monthly dividend in the future. The foundational factor driving that view is its high-quality real estate portfolio. The REIT owns over 15,500 retail, industrial, gaming, and other properties across the U.S. and Europe, net leased to about 1,650 clients in 92 industries.

The long-term net leases securing its properties provide it with dependable rental income as tenants cover all property operating costs (including routine maintenance, real estate taxes, and building insurance). Realty Income pays out a conservative percentage of its stable cash flow in dividends (about 75% of its adjusted funds from operations). That gives it a very comfortable cushion while allowing it to retain a significant amount of cash to fund new investments (Realty Income is on track to produce $843.5 million of free cash flow after dividends this year). The company complements its robust free cash flow with one of the strongest balance sheets in the REIT sector, providing it with even greater financial flexibility to make new investments.

Realty Income has enhanced its ability to grow over the years by steadily diversifying its platform. It started by focusing on investing in retail properties. The REIT has since expanded into industrial real estate, gaming properties, and other property types, including data centers. Additionally, it has expanded geographically (first into the U.K. and then into continental Europe) and started making credit investments (real estate-backed loans). This expansion has increased its total addressable market opportunity to $14 trillion.

While Realty Income has a tremendous amount of financial flexibility to make new investments and a massive opportunity set, it's very selective. The REIT has sourced $97 billion of new investment opportunities this year. However, it only closed on $3.9 billion of deals through the end of the third quarter, as it moved forward with its best opportunities. That discipline enables it to maximize its returns, putting it in the strongest position to continue increasing the dividend.

The perfect passive income investment

Realty Income is a dividend powerhouse. The REIT pays a high-yielding dividend that it has steadily increased over the years. It's well-positioned to continue growing its payout in the future. That's why you can buy shares for passive income and never look back.

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