Realty Income(O) The Motley Fool·2025-03-27 10:09Group 1: Dividend Stocks Overview - Buying dividend stocks is an effective strategy for generating passive income through consistent cash flow from quarterly or monthly dividends [1] - Investors often focus on dividend yield, but the ability of a company to grow its dividend is more crucial for long-term returns [2] Group 2: Historical Performance of Dividend Stocks - Over the past 50 years, average dividend stocks in the S&P 500 have delivered a 9.2% average annual total return, outperforming non-dividend payers, which averaged 4.3% [3] - Companies that grow or initiate dividends have significantly higher returns (10.2%) compared to those with no change (6.8%) or those that cut dividends (-0.9%) [3] Group 3: Case Study - Realty Income - Realty Income has increased its dividend 130 times since 1994, maintaining a streak of 30 years of growth and averaging a 4.3% compound annual growth rate over the past three decades [4][5] - The REIT has achieved a robust total return averaging 13.4% annually over the last 30 years, with a high dividend yield of 5.8% [5] Group 4: Factors Supporting Dividend Growth - Companies that sustain and grow dividends typically have a diversified portfolio, a conservative payout ratio (less than 75%), and a strong balance sheet with an investment-grade credit rating [6] - Realty Income exemplifies these factors, operating in a stable industry and maintaining a low payout ratio [6][7] Group 5: Contrast with Medical Properties Trust - Medical Properties Trust has experienced a total return of -8.4% annually over the past five years, primarily due to two significant dividend cuts [8] - The REIT faced financial issues with its top tenants, which contributed over 35% of its revenue in 2022, leading to a high payout ratio and subsequent dividend reductions [9][10] Group 6: Investment Strategy Implications - Dividend investors should prioritize companies that can grow their dividends to avoid lower total returns and declining passive income [11]