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If You Like Realty Income''s 5.6%-Yielding Monthly Dividend, You Should Check Out This 6.2%-Yielding Dividend Stock | The Motley Fool

Why Realty Income's 5.8% Yielding Monthly Dividend Is a Favorite Among Income Investors – And Three Alternatives Worth Considering

In the world of real estate investment trusts (REITs), few names stand out quite like Realty Income Corporation. Often dubbed the "Monthly Dividend Company," Realty Income has built a reputation for delivering consistent, reliable income to its shareholders through its high-yield, monthly dividend payouts. As of recent market data, the company boasts a forward dividend yield of approximately 5.8%, making it an attractive option for investors seeking passive income streams without the volatility often associated with stocks in other sectors. But what exactly makes Realty Income so appealing, and if you're a fan of its model, are there other REITs that could offer similar benefits or even enhance your portfolio? In this extensive overview, we'll dive deep into Realty Income's strengths and explore three compelling alternatives that share its income-focused DNA, potentially providing diversification or higher yields for those looking to expand their holdings.

First, let's unpack what sets Realty Income apart. Founded in 1969 and headquartered in San Diego, California, Realty Income operates as a triple-net lease REIT, meaning it owns a vast portfolio of commercial properties leased to tenants under agreements where the lessees handle most expenses like maintenance, insurance, and taxes. This structure minimizes operational risks for Realty Income, allowing it to focus on collecting steady rental income. The company's portfolio is impressively diversified, spanning over 15,000 properties across the United States and parts of Europe, with tenants including major retailers like Walmart, Dollar General, and Walgreens. This diversification helps buffer against economic downturns in any single sector or region.

The crown jewel of Realty Income's appeal is undoubtedly its dividend. Paying out monthly dividends since its inception as a public company in 1994, Realty Income has increased its dividend 126 times, including 107 consecutive quarterly hikes. This track record underscores its commitment to shareholder returns, even through challenging periods like the 2008 financial crisis and the COVID-19 pandemic. The current 5.8% yield is particularly enticing in a low-interest-rate environment, where traditional fixed-income investments like bonds offer paltry returns. For retirees or income-focused investors, the monthly payout schedule aligns perfectly with regular expenses, providing a steady cash flow that mimics a paycheck. Moreover, as a REIT, Realty Income is required by law to distribute at least 90% of its taxable income as dividends, ensuring that profits flow directly to shareholders rather than being retained for speculative growth.

However, no investment is without its caveats. Realty Income's focus on retail properties exposes it to risks from e-commerce disruption and shifting consumer behaviors. While the company has adapted by acquiring more industrial and data center assets, its core holdings remain vulnerable to retail sector headwinds. Additionally, with interest rates potentially rising, REITs like Realty Income could face higher borrowing costs, which might pressure margins. Despite these factors, its investment-grade balance sheet and conservative payout ratio (around 80% of adjusted funds from operations) suggest resilience. For many, the combination of yield, frequency, and stability makes it a cornerstone holding.

If Realty Income's model resonates with you – that blend of high yield, monthly dividends, and a focus on essential real estate – there are other REITs that echo these qualities while offering unique twists. These alternatives can help diversify your portfolio, potentially reducing risk while maintaining income generation. Let's explore three standout options: EPR Properties, Agree Realty, and Stag Industrial. Each of these REITs provides monthly dividends, competitive yields, and a strategic focus that complements or even surpasses Realty Income in certain areas.

Starting with EPR Properties, this REIT specializes in experiential real estate, owning properties like movie theaters, entertainment venues, ski resorts, and educational facilities. With a portfolio of around 360 properties, EPR emphasizes "eat, play, stay" experiences that cater to leisure and entertainment demands. Its forward dividend yield currently hovers around 7.5%, notably higher than Realty Income's 5.8%, making it a go-to for yield hunters. Like Realty Income, EPR pays dividends monthly and operates under triple-net leases, shifting most property expenses to tenants. This setup has allowed EPR to maintain a strong dividend history, with payouts dating back to 1997.

What makes EPR particularly appealing as an alternative? Its focus on experiential assets positions it well for a post-pandemic recovery, where consumers are eager for in-person entertainment. During the height of COVID-19, EPR faced challenges with theater closures, but it has since rebounded by diversifying into attractions like Topgolf venues and family entertainment centers. The company's management has a proven track record of navigating downturns, and its current payout ratio is sustainable at about 75% of funds from operations. Investors who like Realty Income's stability might appreciate EPR's higher yield, though it comes with slightly more cyclical risk tied to consumer spending. For those bullish on leisure trends, EPR could provide enhanced income potential without straying too far from the monthly dividend model.

Next up is Agree Realty Corporation, another triple-net lease REIT that mirrors Realty Income's strategy but with a sharper focus on single-tenant retail properties. Agree Realty owns over 2,100 properties leased to investment-grade tenants like Tractor Supply, Home Depot, and O'Reilly Auto Parts. Its forward yield is around 4.5%, which is lower than Realty Income's but still competitive, especially given its emphasis on high-quality, recession-resistant tenants in the home improvement and auto sectors. Agree has paid monthly dividends since 1994 and has increased them annually for over a decade, boasting 11 consecutive years of hikes.

Agree Realty stands out for its conservative approach and growth potential. Unlike Realty Income's broader diversification, Agree targets "mission-critical" retail spaces that are less susceptible to online competition – think hardware stores and auto parts retailers that require physical visits. This has resulted in a remarkably high occupancy rate of over 99%, even during economic turbulence. The company's balance sheet is robust, with low leverage and ample liquidity, positioning it for acquisitions and expansions. For investors who admire Realty Income's reliability but seek a REIT with a more targeted portfolio, Agree offers a compelling case. Its lower yield is offset by stronger dividend growth prospects, with recent annual increases averaging around 6%. In a rising rate environment, Agree's focus on essential retail could provide more defensive qualities, making it a solid complement to Realty Income.

Finally, consider Stag Industrial, which shifts the focus to industrial and logistics properties – a booming sector driven by e-commerce and supply chain demands. Stag owns over 500 industrial buildings across the U.S., leased to tenants in manufacturing, distribution, and warehousing. Its forward yield is about 4.0%, but it pays monthly dividends and has a history of steady increases since going public in 2011. Stag's model is similar to Realty Income's in its use of long-term, triple-net leases, but it capitalizes on the industrial real estate surge, with properties in high-demand areas like logistics hubs.

Stag's appeal lies in its growth story. The industrial sector has seen explosive demand from companies like Amazon and FedEx, leading to rising rents and property values. Stag has consistently grown its portfolio through acquisitions, delivering compound annual dividend growth of about 4% over the past five years. While its yield is lower than Realty Income's, the potential for capital appreciation is higher, thanks to the sector's tailwinds. Risks include supply chain disruptions or economic slowdowns affecting manufacturing, but Stag's diversified tenant base (no single tenant exceeds 3% of revenue) mitigates this. For those who like Realty Income but want exposure to the e-commerce boom, Stag provides a monthly income stream with upside potential.

In summary, Realty Income's 5.8% yielding monthly dividend remains a benchmark for income investors, offering stability and consistency through its diversified, triple-net lease portfolio. However, alternatives like EPR Properties (with its high-yield experiential focus), Agree Realty (emphasizing essential retail), and Stag Industrial (riding the industrial wave) can enhance a portfolio by providing similar monthly payouts alongside unique growth drivers. Each carries its own risks and rewards, so due diligence is key – consider factors like sector exposure, payout ratios, and economic cycles. By blending these REITs, investors can build a robust income engine tailored to their risk tolerance and goals. Whether you're sticking with Realty Income or branching out, the allure of high-yield, monthly dividends continues to make REITs a powerful tool for long-term wealth building. (Word count: 1,248)

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