Realty Income (NYSE: O) has been a money-making investment over the years. The real estate investment trust (REIT) has paid dividends like clockwork. It recently paid its 650th consecutive monthly dividend.

The REIT routinely raises its dividend payment. It most recently delivered its 126th dividend increase since coming public in 1994, pushing its dividend yield further above 5%. That was its fourth dividend increase already this year. It has now given investors a raise in 107 straight quarters and 30 consecutive years, growing its payout at a 4.3% annual rate during that timeframe, including by more than 3% over the past year.

Here’s how it’s able to continue paying its investors even more money.

Built to produce stable income

Realty Income focuses on owning a portfolio of income-generating commercial real estate. The company owns a diversified portfolio of 15,450 retail, industrial, gaming, and other properties across the U.S. and Europe. It primarily owns properties leased to tenants in industries resilient to economic downturns and isolated to the pressures of e-commerce, such as grocery, convenience, dollar, and drug stores.

The REIT signs long-term net leases for these properties with high-quality tenants. That lease structure requires tenants to cover building insurance, real estate taxes, and routine maintenance expenses. Its leases also typically feature some form of annual rental rate escalation clause. They provide the REIT with very stable income that tends to rise by about 1% annually when factoring in bad debt expenses.

Realty Income typically pays out a conservative percentage of its income in dividends, less than 75% of its adjusted funds from operations (FFO). That gives it a nice cushion while enabling it to retain a meaningful percentage of its cash flow to fund new investments.

It also has an elite balance sheet. It’s one of only eight REITs in the S&P 500 with two A3/A- credit ratings or better. Realty Income also has very low leverage ratios, giving it even more financial flexibility.

Multiple growth drivers

Realty Income’s strong financial profile enables it to steadily expand its portfolio. The company’s retained cash flow after paying dividends alone can help fund enough new investments to grow its adjusted FFO by around another 1% per year after factoring in the impact of refinancing maturing debt in today’s higher-interest-rate environment. Add in rent growth, and the REIT can internally deliver around 2% annual growth.

Meanwhile, Realty Income’s elite balance sheet gives it plenty of financial flexibility to externally fund accretive acquisitions. The REIT estimates that for every $1 billion of additional real estate investments it makes, it can add 0.5% to its annual adjusted FFO. It conservatively expects externally funded acquisitions will add another 2% to 3% to its adjusted FFO each year. Add in its internal growth drivers, and Realty Income should grow its adjusted FFO per share by 4% to 5% per year. Factor in its high-yielding dividend, and its total return should be around 10% annually.

Story continues

The REIT should have no shortage of investment opportunities. It estimates that the total addressable global net lease real estate market is $14 trillion. That gives it a long growth runway. Meanwhile, it has steadily expanded its opportunity set by adding new property verticals. In recent years, it has added data centers, gaming properties, and new European markets to its portfolio. It has also launched a credit investment platform. These new platforms have opened the doors to additional growth opportunities.

Realty Income should continue making investors more money

Realty Income built a money-making real estate empire. The company’s durable and growing portfolio prints cash, which it distributes to investors via a steadily rising dividend. With a sound financial profile and a long growth runway ahead, this REIT should continue making money for its investors in the coming years.

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Matt DiLallo has positions in Realty Income. The Motley Fool has positions in and recommends Realty Income. The Motley Fool has a disclosure policy.

This 5%-Yielding Dividend Stock Just Made Investors Even More Money. Here’s How. was originally published by The Motley Fool