For most retirees, Social Security provides a modest financial cushion. With the average benefit currently standing at around $1,976 per month, or $23,712 per year, it can be a significant source of income, but it often falls short of meeting all living expenses.
For those seeking to supplement their Social Security income and secure additional funds for retirement, Realty Income (O), a real estate investment trust (REIT), may be a viable option. Here’s why more retirees are looking into Realty Income as a steady source of income.
What is Realty Income?
Realty Income is a real estate investment trust (REIT) that owns revenue-generating properties and distributes the majority of its profits to shareholders in the form of dividends. Its specialty is brick-and-mortar retail spaces, serving as the landlord to well-known companies such as Walmart, Home Depot, FedEx, and 7-Eleven.
Despite the narrative that brick-and-mortar retail is dying, Realty Income’s portfolio has remained strong, with its occupancy rate sitting at 98.6%, far above the industry average of 94.4%.
This robust performance is attributed to Realty Income’s focus on partnering with strong retail brands and ensuring the sustainability of its business model. Even through challenging periods, such as the 2020 pandemic, the company’s occupancy rate only slightly dropped to 97.9%, demonstrating its resilience.
The Income Benefits of Realty Income
For retirees, one of the key advantages of Realty Income is its reliable and consistent dividend payments. Realty Income stands out because it pays its dividends monthly, rather than quarterly like most other dividend-paying stocks.
For retirees who rely on steady income streams to cover regular living expenses, this monthly dividend payout can be especially appealing, as it matches the timing of typical monthly expenses like rent, utilities, and groceries.
As of now, Realty Income’s forward-looking yield stands at 5.5%, which is higher than most dividend-paying stocks with comparable risk.
The REIT has paid uninterrupted dividends since 1994 and has raised its per-share payout every quarter for the past 111 quarters, making it an attractive option for those looking for consistent and growing income.
Volatility and Price History
Before deciding to invest in Realty Income, however, it’s important to consider the stock’s price history. While the REIT has experienced long-term price appreciation, there have been stretches of time with little to no price growth, and the stock has seen significant volatility.
The company’s performance can be influenced by broader economic factors, such as interest rate changes. Like bonds, dividend-paying REITs are sensitive to interest rate shifts, which can affect the REIT’s ability to borrow money for expansion and development.
As a result, investors may see fluctuating stock prices in uncertain economic environments.
In fact, since 2023, Realty Income’s stock recovery has been somewhat erratic due to ongoing interest rate fluctuations and general market uncertainty. However, the company’s business model and its consistent dividend payments continue to prove sustainable in the long run.
Should You Consider Realty Income?
While Realty Income may not be the only dividend stock you hold, it could serve as an excellent income-generating asset for retirees. Its high yield, monthly dividends, and proven track record of reliability make it appealing for those looking to supplement Social Security benefits.
However, the stock’s volatility may be concerning for some investors, so it’s wise to balance it with other more stable dividend growth stocks, like Coca-Cola or AT&T, to help smooth out the potential fluctuations.
If you are a retiree looking for immediate and reliable income with the potential for growth, Realty Income offers a compelling option. While it might not be the top pick for every investor, it remains a solid choice for those looking for long-term, steady returns, especially with its monthly dividend payout structure.
Before investing, it’s important to assess your risk tolerance and investment goals. Keep in mind that the Motley Fool’s analyst team has identified other stocks with higher growth potential, but for those seeking dependable income in retirement, Realty Income stands as a valuable option to consider.
