by Charles Sizemore | July 24, 2014 1:10 pm
It was another solid quarter for Realty Income (O), which is music to my ears.
After all, O stock is one of my very favorite long-term dividend machines.
A few highlights from the most recently reported quarter:
This gets to the crux of why I love Realty Income and why I consider it far better than a bond for your retirement income needs.
Right now, Realty Income pays an annualized dividend of $2.19. Ten years ago, it paid an annualized dividend of $1.22. So, if you had retired in 2004, using your Realty Income dividends to pay your bills, you would have seen your income rise by fully 80%, far outpacing inflation.
And this says nothing at all about capital gains, which were substantial (125% since this time in 2004).
Had you instead purchased a 10-year bond, your income would not have changed; the coupon payment you received in 2014 would be the same as the first one you received in 2004. And looking at current bond yields, your income would actually fall significantly if you were to reinvest the proceeds in today’s market.
Rather than think of Realty Income as a stock, I prefer to think of it as a perpetual bond with a rising, inflation-beating payout. Yes, it is “riskier” than your average corporate bond in that its stock price is more prone to fluctuation than that of a bond. As a case in point, during 2013’s “taper tantrum,” O stock lost a third of its value from its 2013 peak.
But if you’re buying O stock as an income generator, price fluctuations really don’t matter — so long as the business remains strong and the dividend remains intact.
And on that count, Realty Income passes the test with flying colors. Its portfolio is full of high-quality, recession-resistant properties; its “typical” property is a pharmacy run by Walgreen (WAG) or CVS Caremark (CVS).
Realty Income continued to pay and raise its dividend throughout the crisis years — and in my book, that qualifies O stock as a viable income substitute for bonds.
The question simply becomes one of price.
Realty Income currently yields 4.9%. In a world in which the 10-year Treasury yields 2.5%, that’s attractive. I would consider Realty Income a buy at a yield of 4.5% or higher.
If you still are years away from retirement, consider instructing your broker to automatically reinvest the monthly dividends. I personally own shares, and that is exactly what I do. I hope to leave these shares to my children decades from now, and if they are smart they will hold on to them and pass them on to their own children.
Charles Lewis Sizemore, CFA, is the editor of Macro Trend Investor and chief investment officer of the investment firm Sizemore Capital Management. As of this writing, he was long O. Click here to receive his FREE weekly e-letter covering top market insights, trends, and the best stocks and ETFs to profit from today’s best global value plays.
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