1 Magnificent S&P 500 High-Yield Dividend Stock Down 25% to Buy and Hold Forever

If you are the type of investor who likes to buy and hold stocks forever, you have to use a different set of rules. Simply picking the highest yielding stocks off a list, like the companies in the S&P 500 index, won't do. You need to aim higher, looking for high-yield dividend stocks that you can count on and, better yet, trying to buy them when they are on sale. That is the exact opportunity that exists today with this landlord, which is still trading around 25% below where it was prior to the coronavirus pandemic.

Why buy this high-yield real estate giant?

Realty Income (NYSE: O) is one of the largest internationally diversified real estate investment trusts (REITs) you can buy. It uses a net lease approach, which means that its tenants are responsible for most property-level expenses for the buildings they occupy. Often net lease deals are financing arrangements for the tenant, which sells the property to raise cash while still maintaining effective control over the asset because of the lease structure. Realty Income, which tends to have advantaged access to capital markets, makes the difference between its cost of capital and the rent it collects.

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It's pretty close to a win-win for both the buyer (Realty Income) and the seller (which becomes Realty Income's tenant). And because the REIT structure was created to pass income on to shareholders in a tax advantaged manner (avoiding corporate-level taxation), investors get to benefit, as well. In the case of Realty Income, the dividend yield is a very attractive 5.5% right now. By comparison, the yield on the S&P 500 index is a miserly 1.2%. The average REIT's yield is only 3.6%.

But a lofty yield isn't all there is to like about Realty Income's dividend. That's because the dividend is backed by an incredible track record of annual increases. That streak is 30 years long at this point, with an average annualized rate of increase of 4.4% over the span. But within that 30 years is another streak, with 110 consecutive quarterly increases. On top of that, the dividend is paid monthly, which makes owning this REIT pretty close to a paycheck replacement.

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Realty Income has a great track record, but what does the company do?

There are a lot of net lease REITs you could buy, but Realty Income stands apart from the pack in many ways. For starters, it is very large, with a market cap of around $50 billion. Its next closet peer has a market cap of just $14 billion. Realty Income's size helps create its enhanced access to capital, since it attracts more interest when it issues stock and bonds (having an investment grade rated balance sheet helps on the bond front, too). Also notable on the size front is the REIT's massive 15,600-building portfolio. That creates a huge amount of diversification.

But the diversification goes beyond just owning a lot of buildings. Realty Income's investments span across retail, industrial, and a fairly unique set of "other" assets (such as casinos and vineyards). Its portfolio also spans across the Atlantic, including properties in both North America and Europe. This gives the REIT a lot of different levers to pull as it seeks to expand, which is largely driven by acquisitions.

Optionality is a good thing because there is one small problem that the company has to deal with given its large size. It takes a lot of transaction volume to move the needle on the top and bottom line. In 2024 the company bought nearly $4 billion in new properties and expects to ink a similar amount in 2025. The company's adjusted funds from operations (FFO) grew in the mid single digits in 2024 and will likely be in the low single digits in 2025. Low- to mid-single-digit growth is probably a reasonable expectation over the long term here.

Slow and steady can help you win the long-term race

Building wealth isn't a sprint, it is a marathon. Which is why Realty Income's lofty yield, strong business, and slow and steady growth potential is so attractive. It can create a solid foundation for your buy-and-hold portfolio, allowing you to layer on lower-yielding, but faster-growing companies. This giant net lease REIT won't excite you, but that is where its value lies, because this S&P 500 stock will bore you to tears with a reliable and (slowly) growing dividend while you sleep well all night long.

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*Stock Advisor returns as of March 14, 2025

Reuben Gregg Brewer has positions in Realty Income. The Motley Fool has positions in and recommends Realty Income. The Motley Fool has a disclosure policy.