This 5% Passive Yield Stock Just Increased Its Dividend for the 108th Consecutive Year (and It’s Just the Beginning)

Real estate income (NYSE:O) is a dividend-paying machine. The real estate investment trust (REIT) recently announced its 108th consecutive quarterly dividend increase. It was the 127th increase since going public in 1994 and continued the REIT’s 30-year streak of raising its dividend at least once a year. During that time, the company increased its payout by 4.3% year-over-year.

The company’s latest dividend increase resulted in an increase in its dividend yield a little bit next above 5%. This will undoubtedly not be the last increase. Here’s what makes it REIT such a great way to collect passive income from real estate.

Built to Pay Sustainable Dividends

Realty Income’s mission is to provide reliable monthly dividends for its investors, which has been steadily growing over time, and has certainly done so over the years. A major factor in the reliability of its dividend is its durable real estate portfolio.

REITs Currently has a diversified portfolio of approximately 15,450 properties in the U.S. and Europe. It focuses on owning properties leased to retail, industrial and gaming tenants in business lines that are resilient to recessionary impacts and the threat of e-commerce.

He signs a long-term contract net leasing with creditworthy tenants. This lease structure makes tenants responsible for the operating costs of the property, including routine maintenance, building insurance, and property taxes. These leases typically increase rents by a low single-digit annual rate. This provides the REIT with stable and growing income that supports a steadily increasing dividend.

Realty Income pays out a relatively conservative portion of its stable income in the form of dividends (the payout ratio was less than 75% of adjusted funds from operations (FFO) in the second quarter). This gives the REIT a decent-sized cushion while allowing it to retain a significant portion of cash flow to fund new investments.

The company also has a fortress-like balance sheet. It is one of only eight REITs in the S&P 500 with two credit ratings A3/A- or better. This gives Realty Income tremendous financial flexibility and allows it to lend money at lower rates and on better terms than companies with lower ratings.

A huge and growing market opportunity

Realty Income has grown adjusted FFO at a rate of approximately 5% per year throughout its history (slightly faster than the REIT sector average of 4.3%) during this period). It believes it can grow at a similar pace over the long term, targeting 4% to 5% annual adjusted FFO per share growth.

The story continues

Three factors are driving this outlook. First, Realty Income expects same-store rents to grow by about 1.5% annually. Meanwhile, the company expects deliver 2% to 3% annual growth from internally funded accretive acquisitions (from free cash flow after dividends). Subtract expected bad debt costs (approximately 0.4% per annum) and the impact of higher interest rates on debt refinancing (annual decline of 1-2%), while Reality Income should deliver approximately 2% annual adjusted FFO per share growth from internal sources.

What’s more, REITs can provide an additional 0.5% increase With Adjusted FFO per share growth for every $1 billion of externally financed acquisitions it makes (financed through the sale of stock and the issuance of new debt). Conservatively expects to make $4 billion to $6 billion of externally financed acquisitions each year, what would give another 2% to 3% annual growth in FFO per share. Add it all up, and that’s 4% to 5% adjusted growth in FFO per share each year.

Real estate income should have no shortage of new investment opportunities. The net rental market opportunity is huge. REIT estimates it’s supposed to be $5.4 trillion in the US and $8.5 trillion in Europe. It has increased its overall market opportunity by expanding into new vertical investments such as data centers, gaming properties, additional European countries and real estate loan. This extends an already long growth spurt.

A great way to build a steadily growing stream of income

Realty Income continues its streak of steady dividend growth. It should have no problem continuing to increase its dividend every quarter going forward, thanks to its solid portfolio, strong financial profile, and multiple growth drivers. For this reason, it is great stocks worth buying if you want an attractive and growing stream of passive dividend income.

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Matt DiLallo has positions in Realty Income. The Motley Fool has positions in and recommends Realty Income. The Motley Fool has a disclosure policy.

This 5% Passive Yield Stock Just Increased Its Dividend for the 108th Consecutive Year (With More to Come) was originally published by The Motley Fool