Cory Renauer, The Motley Fool
5 min read
In This Article:
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Most years, a majority of professional money managers fail to outperform the S&P 500 index.
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Since its stock market debut in 1994, Realty Income has more than quadrupled the market with an 8,851% total return.
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At recent prices, Realty Income offers a 5.6% dividend yield.
Enormous sums of money flowing through Wall Street banks have been attracting the world's most talented financial minds for generations. You might be shocked to learn that in any given year, most fail to outperform the benchmark S&P 500 (SNPINDEX: ^GSPC) index.
Last year, a little over one-fifth of actively managed U.S. funds outperformed the benchmark, and that figure gets much slimmer over time. Over the past 20 years, absolute returns from all but 8% of all large-cap funds in the U.S. underperformed the benchmark.
The average American fund manager can't hold a candle to the S&P 500 index, but there's a reliable dividend stock that has outperformed the benchmark by a mile. Since its initial public offering (IPO) in 1994, Realty Income (NYSE: O) stock has risen a little faster than the S&P 500 index.
If we add up monthly dividend payments that have risen every quarter since its IPO, Realty Income has trounced the benchmark with an 8,780% total return. Folks who invested $1,000 into the SPDR S&P 500 ETF Trust at the time of Realty Income's IPO and kept the dividends have seen their investment grow past $22,000.
The benchmark index has produced magnificent gains, but it can't hold a candle to Realty Income's long-term returns. Folks who invested $1,000 in Realty Income in 1994 are already halfway toward a down payment on a starter home in California.
Realty Income is a real estate investment trust (REIT) that finished March with 15,627 commercial properties in its portfolio. Instead of managing its properties, it has tenants such as Tractor Supply and Home Depot sign net leases that make them responsible for taxes, maintenance, and any other variable costs associated with building ownership.
Realty Income's weighted average remaining lease term is over nine years, and investors can look forward to this REIT recapturing those tenants and raising their rent further when their existing leases expire. Since 1996, the company has released about 6,000 properties at a renewal recapture rate of 103%.
With annual rent escalators written into long-term leases and an impressive lease renewal recapture rate, Realty Income's cash flows are highly predictable. Recently, the company raised its monthly dividend for the 131st time to $0.269 per share.
