Owning shares in a REIT can be a great way for me to generate passive income from ownership. REITs make money by owning or operating real estate and renting it out to tenants. In exchange for tax-exempt status, REITs are required to pay at least 90% of their taxable income to their shareholders in the form of dividends. Thus, as a shareholder of a REIT, I receive a dividend for my share of the rental income without having to do any work of finding tenants, maintaining properties or dealing with contractors.
The REIT I bought recently is Real estate income (NYSE: O). Unlike most REITs, the company pays its dividend monthly rather than quarterly. That’s not what I bought it for, however. I bought it because I think it’s a good company with a solid track record and a decent outlook for the future.
The company primarily owns commercial properties and increased its portfolio from 1,197 properties in 2002 to 7,018 properties at the end of the third quarter of 2021. It also maintained an occupancy rate of over 95% during each of the years. these years. More recently, the company increased its retail portfolio by merging with VEREIT and reduced its office exposure by separating REIT Office Orion. During the call for results for the third quarter of 2021, management announced occupancy rates of 98.8% and the collection of nearly 100% of contractual rents. The forecast for adjusted operating funds for 2022 was $ 3.84-3.97 (compared to $ 3.59 expected for 2021).
Realty Income has consistently maintained high numbers for occupancy and rent collection, and I believe it may continue to do so in the future. An investment like this has three obvious sources of risk. One is the rise in interest rates which lowers real estate prices and the stock price of Realty Income. A second is that the opportunities for growth are limited as the business grows. A third comes from the growth of e-commerce leaving Realty Income with empty buildings or tenants unable to pay their rent.
While these risks are real, I believe there are considerations that mitigate them. Since I view my investment as buying an income-generating asset that I don’t intend to sell, I’m not concerned about the stock price going down. As long as the business maintains its high occupancy and rent collection rates, I think things should be okay. During the third quarter earnings call, the company said it has sought more than $ 24 billion in acquisition opportunities, which I see as an indication that there are still significant opportunities to expand the business. business. Finally, Realty Income’s tenant base is largely made up of businesses that have some protection from the threat of e-commerce, such as convenience stores, drug stores, and fast food restaurants, which I think means that the risk of default or default of the tenants of the departure company is limited.
Realty Income is a favorite among investors looking for reliable passive income. I think this status is well deserved, and that’s why I am adding it to my portfolio. Sometimes the best ideas are in plain sight, and it’s best not to overcomplicate things.
Stephen Wright owns shares of Realty Income. The Motley Fool UK has no position in any of the stocks mentioned. The opinions expressed on the companies mentioned in this article are those of the author and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. At The Motley Fool, we believe that considering a wide range of ideas makes us better investors.