Want to Earn a Cool 5.4% Annual Dividend Yield and Get Paid Monthly? Buy This High-Yielding Stock That's Increased Its Dividend for Three Decades.

Key Points

• Dividends can be a great way for investors to generate passive income in a predictable manner.

• Investors should first check a company's track record when it comes to the dividend.

• They also need to analyze a company's free cash flow and earnings to make sure a company can continue to pay and increase its dividend.

• 10 stocks we like better than Realty Income ›

Who wouldn't want to make passive income each month with very little risk or work involved? Dividend investing offers this opportunity, but like most things in life, it's not as easy as it appears. Investors still need to make sure that the companies paying the dividends are well-run, have a good dividend track record, and are generating enough free cash flow and enough earnings to not only pay their dividends each year, but also raise them, which will help keep pace with inflation.

Want to earn a cool 5.4% annual dividend and get paid monthly? There aren't too many stocks that offer a higher dividend yield, and that also have paid and raised the dividend for more than three consecutive decades.

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The monthly dividend company

If a company calls itself "The Monthly Dividend Company," then it better have an attractive dividend and a good track record. The real estate investment trust (REIT) Realty Income (NYSE: O) meets both of these requirements.

A REIT is a special corporate structure that lets a company avoid paying corporate taxes, so long as it meets certain conditions. These include paying out at least 90% of taxable income to shareholders through dividends, earning at least 75% of its income from real estate-related sources, and investing at least 75% of its assets in real estate, cash, or U.S. Treasury bonds.

Realty Income is a triple net lease operator, meaning it leases its properties out to businesses that are responsible for property taxes, property insurance, and maintenance costs. In return for taking on these burdens, businesses and tenants may be able to negotiate longer rental agreements that also may be more affordable.

Realty Income focuses on non-discretionary, low-price-point, and service-oriented businesses including convenience stores, grocery stores, dollar stores, home improvement, and quick-service restaurants. Some of Realty Income's largest clients are 7-Eleven, Dollar General, Walgreens, and Wynn Resorts. The company is also expanding into high-growth sectors like U.S. casinos and data centers and new regions like Europe.

A dividend built to last

Realty Income's annual dividend yield during the past 12 months is about 5.4%. The company also has a great track record, having made more than 30 years of annual dividend payments and increases. Earlier this month, Realty Income announced its 132nd dividend increase since the company listed on the public markets in 1994. Realty Income has also increased its dividend at a compound annual growth rate of 4.2% since 1994.

The best way to assess a REIT's ability to maintain and increase its dividend is to look at a metric called adjusted funds from operations (AFFO), which is sort of like free cash flow for a REIT. AFFO includes adjustments such as adding back depreciation and amortization, real estate impairments, gains/losses on the sale of real estate, capital expenditures, debt-related non-cash items, and much more.

Through the first half of 2025, Realty Income generated AFFO of $2.11, while dividends paid per common share during this same time period were about $1.60, meaning dividends paid comprised about 76% of AFFO, leaving a solid buffer. Given Realty Income's track record and ability to generate AFFO comfortably above its projected dividends, I think investors will be able to rely on Realty Income's dividend for decades to come.

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Bram Berkowitz 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.