Real estate income (NYSE:O) knows how to make money for his investors. The Real Estate Investment Trust (REIT) has delivered a compound annual total return of 14.3% since listing on the New York Stock Exchange in 1994. This allowed it to grow a $10,000 investment thirty years ago to more than $555,000.
The REIT should have no trouble increase the wealth of its investors in the future. This is why it should remain an enriching investment.
Growing wealth one dividend payment at a time
Dividend payments have contributed significantly to Realty Income’s success over the years. The REIT has paid out more than $14.1 billion in dividends since its IPO. It has an incredible track record of increasing its dividend. The REIT has increased its payout a whopping 127 times, including for 108 consecutive quarters, increasing its payout at a compound annual rate of 4.3%.
These dividend payments have made a significant contribution to Realty Income’s returns. For example, it would have cost an investor $37,330 to buy 1,000 shares in late 2013. That investment would have generated almost $30,000 in dividend income in the course of a decade, with approximately 80% of the original investment returned. The annual revenue stream would have grown by almost $1,000, or 44%, over that period. Meanwhile, the total investment is said to have increased in value by 54%, largely due to increasing dividend payments.
Have real estate income could increase steadily its disbursement by expanding the portfolio of income-generating properties. The REIT has made approximately $47 billion in real estate investments since 2010, including acquiring other REITs and purchasing properties in sale-leaseback transactions. These positive investments have grown the company’s adjusted operating funds (FFO) per share by approximately 5% annually.
Built to keep growing
Realty Income aims to grow adjusted FFO per share by 4% to 5% annually in the future. Three factors determine this vision:
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Rental growth: Realty Income’s leases contain embedded rent escalation clauses. The REIT expects rising rents to increase adjusted FFO per share by approximately 1% annually, after adjusting for bad debt.
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Internally financed investments: The REIT has a very conservative dividend payout ratio, at 73.3% of adjusted FFO in the second quarter. This allows the company to maintain significant free cash flow Unpleasant internal finance new investments. It estimates that it can internally finance annual growth of 2% to 3% FFO per share, which will more than offset the expected annual negative impact of 1% to 2% on adjusted FFO due to the refinancing of maturing debt, good for a net growth of 1% to 2%. grow.
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Externally financed growth: Increasing acquisitions financed with a mix of new debt and equity, the growth rate can be further increased. The REIT estimates it can add 0.5% to its adjusted FFO per share for every $1 billion of externally funded acquisitions it makes. It targets $4 to $6 billion in externally financed investments annually. what would add an additional 2% to 3% annually on the adjusted FFO per share.
Real estate income should have no shortage of investment opportunities. The REIT projects a total addressable market of $5.4 trillion net rent real estate in the US and another $8.5 trillion in Europe. It has expanded its capabilities by adding new real estate verticals. For example, it has added data centers, gaming properties, additional European countries and credit investments to its portfolio in recent years.
The REIT has an elite balance sheet, which gives it enough financial flexibility to fund its continued growth. It is one of only eight REITs in the S&P 500 with two A3/A ratings or better. That allows the country to borrow money at lower rates and better terms, increasing its ability to make profitable acquisitions.
It all adds up to a potentially very enriching experience investment
Realty Income believes it can grow its adjusted FFO per share at an annual rate of 4% to 5%, that is close to the historical average. That should allow the REIT to do this keep growing the high-yield dividend of currently over 5%, possibly with approximately the same annual percentage. Drop the two together, And the REIT could generate a total return of about 10% per year, with additional upside if it were to make more acquisitions. At that rate, the REIT would double your investment about every seven years.
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Matt DiLallo has positions in Realty Income. The Motley Fool holds positions in and recommends Realty Income. The Motley Fool has a disclosure policy.
This Incredible High-Yield Dividend Stock Can Make You Richer Slowly was originally published by The Motley Fool
