Investors often try to get rich quick by buying shares of stocks that are soaring. The problem is that sometimes those stocks eventually flare up. A more reliable way to build generational wealth is to have a strong foundation of boring, reliable companies. It’s even better if those companies pay dividends that can be reinvested over time.
At this point, you might want to consider “good sleep companies” like Real estate income (NYSE:O) And Unilever (NYSE:UL).
The real estate income is huge and has a high return
The biggest draw for Realty Income right now is probably the Real Estate Investment Trust’s (REIT) 5.8% dividend yield. That is almost the highest level of the past decade and far above the paltry 1.3% offered by the EU S&P500 Table of contents. You can use the monthly dividend to pay living expenses, or reinvest it to increase your growth over time.
Realty Income is the largest net lease REIT by a wide margin. Its nearest cousin is less than a third as big. Net leases require this landlord’s tenants to pay most of the operating costs at the property level, which helps reduce risk to property income. The company’s 15,400 properties and investment grade balance sheet further reduce the REIT’s risk profile.
But what really sets Realty Income apart from its competitors is its access to capital. That’s directly related to the size of the REIT, making it easier to sell both debt and equity. With an overall low cost of capital, Realty Income can be more aggressive with acquisitions and still make solid profits. While investors shouldn’t expect rapid growth (its sheer size limits that), slow and steady will likely remain the order of the day for years to come as Realty Income continues to buy properties in the US and Europe.
It appears the three-decade dividend streak here still has many years to run, allowing shareholders to build wealth that can be passed on to the next generation, even if you benefit from that income today.
Unilever is busy expanding its activities
Unilever is one of the largest and oldest consumer goods companies in the world. The dividend yield is currently around 3.3%. That’s about the middle of the road for the company over the past decade. But the real story is the potential for the future.
Firstly, Unilever has lagged a bit behind its peers. That’s not great, but management is working on the problem. A lot has changed and there is more to come. Notably, the company moved from a strange dual-listing structure to a UK-only listing, which simplified operations. It has also worked to weed out slow-growth businesses, such as tea, so it can focus on faster-growing businesses through add-on acquisitions, such as Liquid IV.
The next big change will be the jettisoning of the ice cream business, which doesn’t have much in common with the rest of the company’s business. Moving this process forward is activist investor Nelson Peltz, who helped turn Peer around Procter & Gamble NOt so long ago. So this is a turnaround story.
But there’s more that long-term investors need to know. Emerging markets represent approximately 60% of the company’s revenue. Although developed markets perform more reliably, they also tend to grow more slowly. A heavy weighting in emerging markets should give Unilever a growth advantage over the competition in the longer term. If you think in terms of decades, which is what creates generational wealth, gaining some exposure to consumer goods in emerging markets should be very attractive for you.
Today is not the story; the story is tomorrow
To be fair, neither Realty Income nor Unilever are firing on all cylinders right now. And none of these companies are likely to surprise you with growth either. But they have proven time and time again that they know how to thrive in the long term. And there are aspects of both that suggest they can continue to reward investors with slow and reliable growth for years to come. This way you build up assets that you can pass on to your heirs.
Should you invest €1,000 in real estate income now?
Consider the following before purchasing shares in Realty Income:
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Reuben Gregg Brewer has positions in Procter & Gamble, Realty Income and Unilever. The Motley Fool holds positions in and recommends Realty Income. The Motley Fool recommends Unilever Plc. The Motley Fool has a disclosure policy.
2 Stocks That Can Create Lasting Generational Wealth was originally published by The Motley Fool
