The stock market is reeling from the pressures of a potential global recession, and central banks around the world are gearing up for the most aggressive interest rate hikes in history.
The United Nations recently warned that the world is “on the edge of a recession,” which will likely be worse than the pandemic-driven recession in 2020 or the global financial crisis of 2008.
Understandably, U.S. equities have taken a hit, with the S&P 500 index registering the worst monthly performance in September since March 2020.
Resilient Real Estate
Though the real estate prices have fallen significantly from their peak, they are materially higher than the 2021 levels. Despite the strikingly high mortgage rates, home prices as of August are roughly 13.5% higher than the August 2021 levels, according to a report from CoreLogic Inc. In addition, real estate software platform Black Knight stated that home prices in 97 of the 100 largest U.S. markets are 40% higher than the prepandemic level.
Investing in real estate can shield your portfolio from heightened volatility. While investing directly in real estate can be challenging because of sky-high mortgage rates, real estate investment trusts (REITs) are poised to generate a sizable return on investment. REITs are required to distribute at least 90% of their taxable earnings as dividends to shareholders, thereby ensuring a steady revenue stream for investors.
Realty Income Corp. (NYSE: O): The Monthly Dividend Stock
Popular REITs have been able to deliver stable returns to shareholders over the past year — despite the macroeconomic headwinds. With a $35.86 billion market cap, Realty Income is one of the largest U.S.-based REITs. It owns more than 11,400 properties across the U.S., Puerto Rico, Spain and the United Kingdom. It is a constituent of the benchmark S&P 500 index as well as the S&P Dividend Aristocrats index.
The company has raised its dividends 117 times since its initial public offering (IPO) on the New York Stock Exchange in 1994, meeting the 25 annual dividend hikes criteria in order to be included in the highly coveted S&P Dividend Aristocrats index.
Realty Income has paid 628 consecutive monthly dividends since 1994. Moreover, its total returns have risen at a compound annual growth rate (CAGR) of 15.1% over the past 28 years. If you had invested $10,000 during its IPO back in 1994, your total return on investment (provided you reinvested dividends) would have been higher than $500,000 today!
Annually, Realty Income stock pays $2.98 in dividends, yielding an impressive 5.13%. Its forward adjusted funds from operation (AFFO) yield stands at 6.96%. The company raised its monthly dividends by 5.1% year-over-year in June 2022. Furthermore, Realty Income distributed roughly 76.5% of its AFFO during the fiscal 2022 second quarter that ended in June.
Despite the volatile macroeconomic backdrop, Realty Income has continued acquiring properties internationally. In the first half of 2022, the company invested more than $3.2 billion in high-end real estate across the United States and internationally. In fact, in the last quarter, Realty Income raised its acquisitions guidance to over $6 billion for fiscal 2022.
“Our second-quarter results demonstrate the stability of our business and the continued momentum in our global investment pipeline,” Realty Income President and CEO Sumit Roy said.
Realty Income’s real estate portfolio has remained strong despite the market fluctuations, as its occupancy rate stood at 98.6% at the end of the fiscal second quarter — the highest in 10 years. This marks a 40 basis-point increase in portfolio occupancy rate year-over-year. Also, the company exited the fiscal 2022 second quarter with a 105.6% recapture rate on releasing activity, reflecting its strong market position.
Robust Growth Ahead
Realty Income has focused on expanding its overseas portfolio for a while. To that end, the company recently raised its multicurrency revolving line of credit to $4.25 billion and its commercial paper program to $3 billion.
This follows the company’s acquisition of VEREIT Inc. last December, consolidating its position as a leading net lease REIT.
"With the closing of the VEREIT merger, we believe our size, scale and diversification will further enhance many of our competitive advantages, accelerate our investment activities and enhance shareholder value for years to come,” Roy said in a press release.
Apart from projected inorganic growth, Realty Income is also restructuring its existing portfolio to boost rental income. In the first half of 2022, the company raised its annual new rent on re-leases by 5.8%.
With a potential recession knocking on the door, stable dividend income has become one of the priorities of retail and institutional investors alike. The monthly dividend stock might be one of the best REITs to invest in this month as the market backdrop becomes gloomier. Its historical performance and strong balance sheet should allow it to withstand an economic downturn with ease.
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