Realty Income (O -0.75%) built its business to pay dividends. The real estate investment trust (REIT) owns properties that produce durable rental income. That gives it the money to pay its attractive 5.8%-yielding monthly dividend.
The REIT has increased that payout 123 times since its public market listing 30 years ago. It should be able to continue growing it in the future. Driving that view is its ability to continue acquiring income-producing properties. That ability to pay a durable and growing monthly dividend makes it a great place to invest $100 right now. Investors could buy about two shares of a REIT that should produce a steadily rising stream of monthly dividend income.
Acquiring more income
Realty Income recently unveiled its latest acquisition. The REIT is buying a portfolio of properties in Europe from Decathlon SE, one of the world’s top sports companies and sporting goods retailers. Realty Income is purchasing 82 retail properties from Decathlon SE in a sale-leaseback transaction valued at 527 million euros ($578 million). It’s the company’s first pan-European transaction, with properties in Germany, France, Spain, Italy, and Portugal.
Those properties will supply Realty Income with incremental rental income to support its growing dividend. Meanwhile, the acquisition enhances the company’s diversification by adding a new tenant with a strong operating history and financial position. The deal also furthers the company’s European expansion by adding several new countries. Before the purchase, Realty Income’s European portfolio included 354 properties across the U.K., Spain, Italy, and Ireland. The company will have now invested over $9.5 billion into building out its European real estate portfolio since entering the continent in 2019.
Realty Income’s initial sale-leaseback transaction with Decathlon could be the first of many between the two companies. “We hope that this is the first step in a long and mutually beneficial global relationship between Decathlon and Realty Income,” stated Neil Abraham, President of Realty Income International, in the press release unveiling the deal. Decathlon currently operates 1,751 stores across more than 70 territories worldwide, including 27 in Europe, 14 in Asia, and four in Latin America. Realty Income could acquire additional properties from Decathlon in future sale-leaseback transactions, further expanding its international operations. Future deals would also provide additional rental income to support dividend growth.
Continuing to enhance its dividend through deals
The Decathlon deal is the latest in a string of value-enhancing investments by the REIT in recent months. It started 2024 on a strong note by closing its $9.3 billion acquisition of fellow REIT Spirit Realty. The company expects the merger to add over 2.5% to its adjusted funds from operations (FFO) per share this year. That puts it more than halfway to achieving its annual target of increasing its adjusted FFO by 4% to 5% per year.
Realty Income’s focus in recent years has been on increasing its scale through consolidation deals like the Spirit Realty merger and expanding its portfolio into new growth verticals (property types, investment platforms, and geographies). For example, in addition to expanding deeper into Europe, Realty Income has made investments in the gaming sector (Encore Boston and The Bellagio Las Vegas), credit investments (preferred equity investment in The Bellagio Las Vegas), and data centers ($200 million development joint venture with leading data center REIT Digital Realty). These investments will increase its adjusted FFO in the near term while providing it with new growth platforms to drive future cash flow and dividend growth.
Build real estate income brick by brick
Realty Income is a great way to generate passive income from real estate. With its stock price recently around $50 a share, you can pick up a couple of shares for around $100. They will supply you with an attractive and growing income stream. With a nearly 6% yield and 4% to 5% annual adjusted FFO per share growth target, Realty income could generate double-digit total annualized returns in the future (enough to double your money every seven years). That makes it a great stock to buy anytime you have around $100 available to invest.
Matthew DiLallo has positions in Digital Realty Trust and Realty Income. The Motley Fool has positions in and recommends Digital Realty Trust and Realty Income. The Motley Fool has a disclosure policy.