Week #3O
Stock of the Week #3 — Realty Income (O)
84Five-box test: ✓ Pays · ✓ Raises · ✓ Safe · ✓ Undervalued · ✓ Yield that matters
Week three, another $100, and this time we're buying income you can almost set your watch to.
Our first two picks were a rural-goods retailer and a medical-device maker. This week we add a third kind of business entirely: a landlord. Realty Income (O) owns thousands of freestanding commercial properties and leases them to tenants like Walgreens, Dollar General, FedEx, and grocery chains on long, dependable contracts. It collects the rent and passes it on to shareholders. It does that so reliably it trademarked a nickname: "The Monthly Dividend Company."
Why Realty Income
The appeal is right there in the name. Realty Income has paid a dividend every single month for 671 straight months, and raised it for 31 consecutive years, straight through the 2008 crash, the 2020 shutdown, and the 2022 rate shock. Most companies pay you four times a year. This one pays you twelve. For a portfolio about watching income compound, a holding that drops cash into the account every month is a natural fit, and it pairs nicely with the monthly view on our income tracker.
It's also a third distinct economic engine: Tractor Supply rises and falls with rural spending, Medtronic with healthcare, and Realty Income with commercial real estate and interest rates. Three businesses that don't move in lockstep is how a family portfolio gets sturdier.
The five boxes (scored the right way for a REIT)
A quick honest note on the numbers, because this is where a lot of people get misled. Realty Income is a REIT, and REITs report a "payout ratio" on standard earnings that looks terrifying, over 250% in Realty Income's case. That figure is meaningless here: REITs subtract enormous non-cash property depreciation, which crushes reported earnings without touching the actual rent coming in. The metric that matters is AFFO (adjusted funds from operations), the real cash a REIT has to pay dividends. We score Realty Income on AFFO, the same way the professionals judge it.
- Pays — yes, 671 consecutive monthly dividends, 55+ years.
- Raises — 31 straight years of increases.
- Safe — about 73% of AFFO. Well-covered cash flow, not the scary 250% the headline shows.
- Undervalued — yield sits modestly above its own 5-year norm; reasonably priced, not a steal.
- Yield that matters — about 5.2%. The highest income of anything we own.
Five boxes, five checks, for a DividendAbundance Score of 84 — Strong.
The honest part
Two things to say plainly. First, like Medtronic, Realty Income is a slow grower — recent raises have run about 2 to 3% a year as higher interest rates squeeze the cheap-money model REITs ran on for a decade. We're buying it for its big, dependable, monthly income, not for fast-rising dividends. Second, a tax note: REIT dividends are mostly taxed as ordinary income rather than at the lower qualified-dividend rate. In a regular taxable account that matters, so we'll always show you the after-tax picture honestly.
We're buy-and-hold-forever investors, and a 5%+ yield from a 31-year raiser, paid monthly, is exactly the kind of steady foundation we want under the portfolio.
The numbers on this week's $100
- Invested: $100.00
- Bought: 1.6016 shares at $62.44
- New annual dividend income added: about $5.21 per year, the biggest single-week income bump yet
- Every dividend it pays gets put right back to work in the portfolio, so the income keeps building between our weekly buys.
Three weeks in, three very different businesses, one income stream that now grows in part every single month. The running totals are on the portfolio page, and the home-page slider lets you drag through time, and toggle to monthly, to watch it compound.
That's week three. We bought O, we're holding it, and we'll see you next week with pick number four.
This is not financial advice. We're individual investors sharing our own approach and the reasoning behind our own real decisions, not licensed advisors. We own, or are buying, the stocks we write about in this series. Do your own research and consider speaking with a financial professional before investing. Dividend figures, yields, share counts, and prices are accurate to the best of our knowledge as of the publish date and will change over time.