There Are Only a Handful of S&P 500 Stocks That Yield Over 5%. Here’s My Top Pick to Buy Before the End of August.
The S&P 500 index (^GSPC -0.06%) is yielding around 1% today, which is very low. So when you look at stocks yielding five times that amount, you need to tread with a little caution. Many of them will be struggling businesses. That, however, is not the case with Realty Income (O -0.66%). Here’s why even the most conservative dividend investors will find this high-yield stock attractive.
Realty Income is built to be reliable
Realty Income is a real estate investment trust (REIT). The REIT business structure is designed to pass income on to shareholders in a tax-efficient manner, so high yields are normal in the REIT sector. From a big-picture view, there’s nothing particularly shocking about Realty Income’s 5.1% dividend yield. That said, it is not only higher than the S&P 500’s yield but also higher than the average REIT’s 3.5% yield.
Image source: Getty Images.
A key part of the story here is that Realty Income is a slow-moving giant. The dividend will make up a material portion of an investor’s total return over time. That’s by design, but it means that the stock will often trade at a discount to faster-growing REITs. If you are looking to maximize the income you generate from your portfolio, this probably won’t be a big deal.
The big story here is that Realty Income is a great business. It has an investment-grade-rated balance sheet. It has increased its dividend annually for 31 years. The dividend is paid monthly, which makes budgeting easy if you are living off of your dividends. And the company is the most important player in the net lease niche.
Today’s Change
(-0.66%) $-0.42
Current Price
$62.42
Key Data Points
Market Cap
Day’s Range
$62.36 – $62.95
52wk Range
$55.86 – $67.94
Volume
2.2M
Avg Vol
5.9M
Gross Margin
50.82%
Dividend Yield
5.16%
With over 15,500 properties, it is easily the largest net lease operator. A net lease requires the tenant to pay for most property-level operating costs. That reduces costs and risk for Realty Income because it doesn’t need to handle property-level operations. Meanwhile, nearly 80% of rents come from the retail sector, the most liquid net-lease property niche. The rest is spread across industrial properties and unique property types, like casinos and data centers. Diversification is further enhanced by the company’s exposure to Europe, which accounts for around roughly 20% of rents.
A dividend tortoise that even conservative investors will appreciate
Although growth is likely to be slow, management has long worked to expand the business into new areas. Starting to invest in Europe is one example, as is the move into casinos and data centers. More recent moves include making debt investments and offering fee-driven asset management services to institutional investors. Essentially, everything the company does builds on its core strengths, adding new growth platforms to support slow and steady dividend growth. This business model has worked well for decades and is highly likely to continue to do so.
You shouldn’t expect Realty Income to be exciting. But you should expect it to keep paying a reliable, slowly growing dividend. And with a yield of 5.1%, there’s a lot to like about the story here. In fact, even the most risk-averse investors should probably consider buying this high-yield REIT as August draws to a close.
