1 Reason I'll Never Sell Realty Income

I own shares of about 40 different stocks between my retirement accounts and standard (taxable) brokerage accounts. Over the years, I've owned and sold dozens more. Of all of them, I can't think of a stock that I'm more likely to own for the rest of my life than real estate investment trust Realty Income (NYSE: O).

Shortly after starting my career, I opened a Roth IRA, and Realty Income was one of the first stocks I bought. I've added shares several times since then. Here's a quick overview of what Realty Income does and why it's such a great "forever" stock.

Woman shopping in a supermarket.

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Realty Income: The short version

If you aren't familiar with the company, here's a quick overview.

Realty Income is a real estate investment trust, or REIT, that specializes in single-tenant properties, most of which are occupied by retail tenants. However, these aren't the types of retailers that you've been reading about filing for bankruptcy or closing stores. Think of businesses like convenience stores, drugstores, dollar stores, and others that do well in all economic conditions and aren't particularly susceptible to e-commerce disruption.

As of mid-2020, Realty Income owns about 6,500 properties in the United States and the U.K. It primarily grows by acquiring high-quality properties in its target industries and has increased in size dramatically over the past few decades.

A dividend and growth machine

There are two reasons why Realty Income is a retirement investor's dream stock. First, consider the types of properties it invests in. As mentioned earlier, most of Realty Income's tenants are in recession-resistant businesses, and most aren't particularly vulnerable to e-commerce headwinds. For example, convenience stores sell things (particularly gas) that aren't practical to sell online, and that people need no matter what the economy is doing.

Second, Realty Income's tenants sign long-term leases -- known as triple-net leases -- that require the tenants to pay for property taxes, building insurance, and most maintenance costs. The leases also typically have annual rent increases, or escalators, built right in. All Realty Income has to do is get a tenant in place and enjoy year after year of predictable, growing income.

The proof is in the numbers. Realty Income was founded in 1969, but first listed on the NYSE in 1994. Since that time, the company has increased its dividend 107 times and has never slashed its payout. Realty Income has a 4.5% dividend yield at the current stock price, which is significantly higher than the average S&P 500 dividend stock.

If you're thinking Realty Income is just an income play, think again. Since its 1994 NYSE listing, the stock has delivered an annualized total return (dividends plus stock price growth) of 15.3%. To put this into perspective, if you'd invested $10,000 into Realty Income's NYSE listing 26 years ago and reinvested your dividends, your investment would be worth a staggering $402,000 today.

In short, Realty Income has been a consistent income and growth machine for its investors for decades, and there's no reason to think this will change anytime soon. Since I own Realty Income shares in my retirement account and eventually anticipate drawing income from it, I can't see myself ever selling my Realty Income stock.

Never say never

To be perfectly clear, I can't say with 100% certainty that I'll own Realty Income in my portfolio forever. It's entirely possible that the company could be bought out at some point, for example -- after all, Realty Income's market capitalization is just over $21 billion, which certainly puts it in the realm of possibly being acquired. Or, the company's business model could theoretically pivot in a way that would make me think twice.

However, as long as Realty Income and its management team keep doing what they're doing, I can't visualize my stock portfolio without Realty Income in it.

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Matthew Frankel, CFP owns shares of Realty Income. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


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