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Key Points

• The S&P 500 index is offering a yield of just 1.3% or so today.

• This stock has a yield of 5.6% backed by three decades of annual dividend increases.

• Dividend investors will appreciate the monthly payment cadence.

The S&P 500 index (SNPINDEX: ^GSPC) has a tiny dividend of 1.3% or so. It would be very difficult to live off the income collected from an S&P 500 index fund. What if you could get four times that income? That's what is on offer from S&P 500 component Realty Income (NYSE: O) today, given its 5.6% dividend yield. Here's a quick look at this ultra-high-yield stock and why you might want to add it to your dividend portfolio.

What does Realty Income do?

Realty Income is a property-owning real estate investment trust (REIT). So, from a big-picture perspective, it does exactly what you would do if you owned a rental property. It just operates on a much larger scale, given that Realty Income has a portfolio of more than 15,600 properties spread across North America and Europe.

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That's not the whole story, though. Realty Income uses a net lease approach. This basically means that it owns the property, but the tenant is responsible for most property-level operating costs. Tenants do this because they want full control over the property. Realty Income is happy to use net leases because they reduce expenses and risk, particularly given the massive size of the REIT's portfolio.

Realty Income's business is centered around single-tenant retail assets, which make up nearly 75% of its rent roll. These properties tend to be very similar to each other. That makes them relatively easy to buy, sell, and release if needed. The other 25% of the portfolio is spread across industrial assets and some one-off properties, like vineyards and casinos. Overall, it's probably best to consider Realty Income a retail REIT, while still appreciating the geographic and property type diversification that it offers.

Why dividend investors will love Realty Income

The most obvious reason why a dividend-focused investor will appreciate Realty Income is the well-above-market 5.6% dividend yield. However, that yield is also well above the average REIT's 4% yield. Simply put, this dividend stock is offering a huge income stream.

The lofty yield, meanwhile, isn't particularly risky. That's highlighted by the fact that Realty Income has increased its dividend annually for 30 consecutive years. The dividend is also backed by an investment grade rated balance sheet. This is a rock-solid REIT that's focused on returning cash to investors. The high yield is really a reflection of the tortoise-like nature of the company, with dividend growth over the past three decades averaging around 4% a year.