One of the best and most proven methods to build long-term wealth is through owning real estate. Of course, that’s easier said than done.
Owning property can be a hassle. Often you’ll need to acquire loans, find tenants, invest even more money to make improvements and maintenance, etc.
But most investors don’t realize that there’s an easier way to achieve the upsides of owning real estate without (and other ways to build a large, consistent income). And you can access it with one click of the mouse.
I’m talking about real estate investment trusts, or REITs.
REITs are traded on U.S. exchanges and are just as easy to purchase as stocks, but REITs aren’t exactly stocks.
They’re similar to mutual funds, but instead of investing in stocks and bonds, they own a portfolio of real estate properties. REITs are essentially massive landlords, and they generate their revenue by leasing out their properties and collecting rent.
And depending on the REIT, it can own anything from hotels and private beach clubs to storage units and residential real estate.
Not only do REITs dish out massive amounts of income, but historically they’ve offered capital appreciation. That’s due to the fact that over the long-term, real estate prices tend to increase and at least keep pace with inflation. That’s a huge advantage over other income-producing securities like bonds.
Check out the total returns of REITs (blue) vs. the S&P 500 (black). It’s not even close, REITs have crushed the returns of blue-chip stocks by more than 5-to-1:
There’s another major difference between REITs and other investments. They are required by law to pay out at least 90% of their taxable income to investors, which is why they tend to offer much larger yields than stocks and bonds.
For investors looking for income in this low yield and interest environment, REITs could be the answer.
When it comes to increasing streams of tax-advantages rental income, it doesn’t get much better than Realty Income Corp (NYSE: O).
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The company kicked off in 1992 with 600 properties scattered around the country. A decade later, it had doubled in size to 1,200 properties. Today, this coast-to-coast real estate empire boasts nearly 6,000 properties — totaling in 93.3 million rentable square feet across the U.S., Puerto Rico, and the United Kingdom.
The vast majority (about 82%) of its portfolio is in retail properties, and its tenants are some of the largest, most established companies in the world.
For example: Walgreens leases 215 of Realty Income’s properties, 7-Eleven leases 398 properties and Dollar General occupies 609 locations. Other tenants include: Walmart, Sam’s Club, CVS Pharmacy, Kroger and Home Depot.
In fact, 98.3% of Realty Income’s properties are occupied. With these sorts of investment grade tenants, and near 100% occupancy rate, it’s easy to see why Realty Income is one of the top REITs in the world.
The company’s world class portfolio allows the firm to generate consistent — and growing sales, profits and funds from operation. Sales have grown at an average annual clip of 11.3% over the last five years, with the company producing more than $1.4 billion in 2019.
Additionally, funds from operation (or FFO) is a financial metric used by REITs to define the cash flow from the firm’s business operations. Realty Income has increased this important metric nearly every quarter over the last five years.
And in its most recent quarterly filings, the company churned out more than $87 million per month — that’s $262 million for the quarter. Because this company is structured as a REIT (meaning it must pay out at least 90% of their income to shareholders), every penny of that profit is exempt from the tax bite of Uncle Sam.
One gigantic benefit of Realty Income’s distributions is that shareholders get paid monthly. Yes, that’s right… you don’t have to wait every quarter, or six months to collect the dividend. This REIT pays out every single month, which means your interest compounds even faster.
As a matter of fact, Realty Income has paid out 594 consecutive monthly dividends — making it one of the highest-yielding and appealing Dividend Aristocrats in the market.
What’s even more exciting is that the real-estate empire has increased its monthly dividend 103 times since it went public in 1994. And shareholders who have held onto Realty Income since it went public have enjoyed a 16.5% compound average return.
That’s incredible, and it crushes the S&P 500’s roughly 10% average return over the same time period.
Realty Income’s portfolio of world-class properties, and investment grade tenants should keep the increasing monthly dividends rolling in. Remember, nearly 600 consecutive monthly dividends and counting.
Simply put, if you’d like to achieve the potential upsides of owning real estate without a hitch, then Realty Income is the optimal starting point.
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Inside is an entire portfolio of dividend-payers and even another one of my top REIT picks.
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