10-Year Treasury Notes Yield 5.2% Right Now. Here's Why I'd Still Choose Realty Income for Passive Income.

It's getting hard for even the high-quality income producers to get noticed these days. Between the Fed shifting to push rates higher, inflationary pressures, and the steepening of the yield curve, 10-year Treasury notes are yielding 5.2% in October.

With healthier payouts coming from conservative, fixed-income investments on the rise, it's been a dinner bell for yield-hungry investors that were previously locked into dividend stocks when interest rates were lower. You've seen a lot of popular, high-yielding stocks take a hit in recent months. One of them -- Realty Income (NYSE: O) -- is now worth another look.

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Opportunity is knocking

It's been less than two months since I last wrote about Realty Income, one of my favorite and largest real estate investment trusts ( REITs ). It was yielding 5.2% at the time, when 10-year notes were yielding a bit lower than they are now. Realty Income is currently offering a 6.1% yield as I write this.

Two things have happened to Realty Income over the past month that have helped prop up that yield. The biggest event is the REIT's 13% drop over the past month. The second thing to happen has less weighting in the chunkier yield, but it's also important: Realty Income boosted its monthly dividend rate on Sept. 8.

It was a microscopic hike. The monthly -- yes, monthly -- distribution went to $0.2715 per share from $0.2710 per share. There's a big trend behind the small hike, and that is what is worth noting. Realty Income has now delivered 136 dividend hikes since it went public in 1994. There are a handful of stocks with long track records of annual increases, but Realty Income has now boosted its payout for 116 consecutive quarters.

The summertime swoon in stock price isn't entirely undeserved. Higher rates are challenging for leveraged REITs, and Realty Income has more than $30 billion in debt on its books. It also introduces default risk for tenants, since they are on the hook for property taxes, insurance, and routine maintenance expenses under the triple-net leases they sign with Realty Income.

Realty Income stock doesn't stay down for long. A big reason for its market darling status is the quality of its tenants. The two largest sectors it serves are supermarkets and convenience stores, retailers that have historically proven to be recession-resistant.

There are a lot of moving parts to Realty Income, a given when you have more than 15,500 properties to manage. It's pretty good at filling the vacancies quickly when they happen, with an industry-envying 98.8% occupancy rate at the end of June.

I'm not calling a bottom on Realty Income here. If 10-year Treasuries are yielding north of 6% in a couple of months, I don't expect Realty Income to make up its declines and be back to yielding 5.2%, as it did in mid-August. However, I know that historically, investors who have bought Realty Income after it retreats by more than 10% have eventually been rewarded. The roof isn't falling. The thud you hear is opportunity knocking.

Rick Munarriz has positions in Realty Income. The Motley Fool has positions in and recommends Realty Income. The Motley Fool has a disclosure policy.