Key Points
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Investing $7,500 into Realty Income gets you around 126 shares, generating $409.75 in annual dividend income.
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While Realty Income’s dividend has grown an average of over 4% since 1994, its dividend increases have been more modest lately.
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Even if payout growth remains average, the annual dividend from this position may rise to $443.52 per year by 2030, an 8.25% increase.
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A key reason investors own Realty Income (NYSE: O) is for its famed monthly dividend, which makes owning this real estate investment trust (REIT) seem similar to owning properties outright.
Right now, Realty Income has a forward dividend yield of 5.5%. However, given that Realty Income has raised its dividend each year since going public in 1994, it is reasonable to expect payouts to continue increasing between now and 2030.
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What a $7,500 Realty Income position yields you today
The figures below assume no dividend reinvestment. As Realty Income has recently traded at around $59.25 per share, $7,500 buys around 126 shares, for a total investment of $7,465.50. The REIT last raised its monthly payout in June, from 27.05 cents per share to 27.1 cents per share. Annualized, that’s around $409.75 in dividend income from this 126-share position.
So where does that leave the position four years out, given Realty Income’s policy of increasing its monthly dividend once every quarter?
Portfolio income from this position in 2030
Realty Income’s dividend growth has averaged 4.1% annually since its public market debut. In recent years, however, annualized dividend growth has slowed to around 2%-3%. Over the past year, dividends have increased by only about half a percentage point.
Two factors help to explain the slowdown. First, the ongoing high-interest-rate environment. Second, the REIT’s big move into artificial intelligence data centers. For now, these may affect cash flow, but in the years ahead, the REIT could once again implement dividend increases in line with the recent past.
Assuming 2% annualized dividend growth between now and 2030, Realty Income’s monthly payout could rise to 29.3 cents, or $3.52 per share annually. Based on our hypothetical $7,500, 126-share position, that would be around $443.52 in annual dividend income for a yield on cost of around 6%.
This underscores the major trade-off with Realty Income shares: You may receive a relatively high yield today, but don’t expect this income stream to snowball over time.
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Thomas Niel has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Realty Income. The Motley Fool has a disclosure policy.
