1 Top Dividend Growth Stock to Buy Right Now

For many investors, dividends can become a realistic source of income after retirement. For example, if you owned $1 million worth of Realty Income (NYSE: O) at its current yield of 5.7%, you would generate $4,750 per month or $57,000 in cash every year without having to work. That's significantly more than the U.S. median income of $42,220.

To be fair, most Americans don't have $1 million in cash lying around. However, accumulating this amount of money is very doable over the long term. The key is starting early and taking advantage of the power of aggressive saving and compounding interest.

Where to invest $1,000 right now? Our analyst team just revealed what they believe are the 10 best stocks to buy right now. Continue »

Let's explore why Realty Income could be an excellent addition to a balanced investment portfolio.

Image source: Getty Images.

Slow and steady wins the race

It can be tempting to pour money into the most exciting asset classes like cryptocurrencies, leveraged exchange-traded funds (ETFs), or penny stocks. However, the losses from these high-risk strategies can often overshadow the gains, leading to a lower-than-expected long-term return. Real estate investment trusts (REITs) operate under a completely different value proposition: Slow and steady wins the race.

Realty Income is the quintessential example of how this works. Since its listing on the New York Stock Exchange in 1994, the company has generated a compound annual total return of 13.6% through a combination of dividend payouts and growth in its stock price. Returns have been around 4x higher than the S&P 500 index, which tracks a basket of leading stocks.

O Total Return Level data by YCharts.

A diversified and stable portfolio

The economy is notoriously unpredictable, especially over the long term. While dominant companies like Apple, Google, and Netflix look unbeatable today, investors don't know if they will become the IBM, Blockbuster, or General Electric of the future. That said, when it comes to consumer-facing real estate, investors can sleep a little easier.

Real estate has a strong economic moat because it offers one of the key inputs other businesses need to survive. If a record store goes under, it can be replaced by a Blockbuster. And when that goes bankrupt, it can be replaced by an H&R Block office.

Realty Income builds upon the industry's natural advantages by focusing on clients that supply consumer staple goods that will remain in demand no matter what is happening in the economy.

Top clients include grocery stores, convenience stores, and dollar stores, which sell low-cost, necessary items like food and toiletries. Realty Income boasts a remarkably high occupancy rate of 98.5%, which speaks to the quality of its tenants. It boosts safety even further by using net lease agreements, where the tenant is responsible for many of the property's operating expenses, like taxes, maintenance, and insurance.

Realty Income is a strong buy

With a combination of safety, longevity, and a high yield, Realty Income is an excellent pick for investors who want sustainable long-term income and peace of mind in the stock market. But the icing on the cake comes from the company's growth potential.

While Realty Income is already a $50 billion company, it still has plenty of room for expansion in the $22.5 trillion U.S. commercial real estate market. Management is also targeting international opportunities in continental Europe and the United Kingdom, where it serves household names such as the well-known supermarket chains Sainsbury's and ASDA.

Historically, Realty Income has grown its dividend payout by an average of 4.3% annually since its listing in 1994. It looks capable of maintaining this track record for decades into the future.

Should you invest $1,000 in Realty Income right now?

Before you buy stock in Realty Income, consider this:

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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Will Ebiefung has positions in Realty Income. The Motley Fool has positions in and recommends Alphabet, Apple, International Business Machines, Netflix, and Realty Income. The Motley Fool recommends J Sainsbury Plc. The Motley Fool has a disclosure policy.