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The best part about owning dividend stocks is that you can think of your expenses in terms of how many shares you need to cover a certain expense. For example, suppose you pay $100 per month for car insurance. You might ask, How many shares of a monthly dividend stock like Realty Income (NYSE: O) would I need to pay that bill using passive income?
It's 390 shares in this case.
If you do it right, you can build your portfolio to generate the funds needed to pay your bills. Eventually, you could reach a point where you spend less time working and more time doing the things you enjoy or maybe just kicking back on a beach somewhere.
Whatever you aim for, consider buying some Realty Income stock to help you achieve it. Here's how it can work.
Realty Income helps fund reliable revenue streams
Realty Income is a real estate investment trust (REIT). It specializes in real estate and allows investors to benefit from the perks of owning real estate without actually owning it. It combines aspects of being a landlord with owning stocks. REITs must pay out at least 90% of their taxable profits to shareholders, so REITs like Realty Income make great dividend stocks.
As a real estate company, Realty Income depends on high-quality tenants who will pay their rent. Otherwise, investors don't get paid. That's where Realty Income shines. It focuses on retail tenants that operate recession-proof businesses. Think grocery, convenience, and dollar stores -- places people shop during good and bad times.
It's been a winning formula for Realty Income, whose profits have been resilient regardless of the economy. The pandemic was a real estate crisis, yet Realty Income's cash from operations never dropped more than 7%. In other words, the money is routinely there to pay its dividend.
Realty Income has an ironclad dividend
That reliable cash flow has made Realty Income a dependable dividend stock. The company has paid and raised its dividend for 31 consecutive years. It's also a high-yielder; investors get 5.7% at today's share price.
The dividend payout ratio is also just 71%. Remember how I said cash flow never dipped more than 7% during the pandemic? Yep, that's a 22-point margin of safety in the dividend payout.
The company's dividend hasn't grown very fast, just 3.6% annually over the past five years. However, add its high starting yield of 6.1%, and Realty Income can be an excellent stock to hold and let the dividends pile up over time. Reinvesting the dividends can turbo-charge your portfolio returns, too.