Over at my premium newsletter, High-Yield Investing, I have a portfolio reserved for a group of stocks I call "Lifetime Wealth Generators."
Membership is reserved for special companies that can be reliably expected to continue growing dividends well into the next decade, regardless of what the economy throws at them.
Among other requirements, these businesses should have sturdy and visible cash flows that aren't terribly sensitive to external macro events. They should also have identifiable competitive advantages and operate in industries that are built to stand the test of time.
As you can imagine, there aren't many income stocks that meet this strict criteria.
But Realty Income (NYSE: O) is a textbook example.
The company owns more than 5,000 properties leased to 260 different commercial tenants. I'm not talking about vulnerable mom-and-pop retailers either, but rock-solid renters such as Wal-Mart (NYSE: WMT), Circle K, Kroger (NYSE: KR) and Home Depot (NYSE: HD). These properties are found in 49 states and leased to tenants in 48 different industries, insulating the company from a downturn in any one sector or geographic area.
Only a handful of these buildings (71 out of 5,694) are currently vacant. That's an occupancy rate of nearly 99%. In its 25-year history, Realty Income's occupancy has never once dipped below 96%.
Source: Realty Income
While many retail landlords are struggling, Realty Income was cut from a different cloth.The company's properties are freestanding, not located in malls or shopping centers (which means better margins, lower rent volatility and less dependence on imperiled anchors). Better still, 96% of its rental income is shielded from e-commerce threats. After all, gas stations, drug stores and fast-food chains like Wendy's (Nasdaq: WEN) don't compete with Amazon (Nasdaq: AMZN).
That's one reason why Realty Income has delivered positive earnings growth in 21 of the past 22 years. And its dividend track record is second to none:
• 583 straight monthly distributions over the past 49 years
• 100 dividend increases since the IPO in 1994
• 85 consecutive quarterly dividend hikes
It has been 25 years since Realty Income first listed on the New York Stock Exchange. And over that quarter-century, it has now raised dividends an even 100 times. That milestone was reached just last month when the monthly payout was lifted to $0.2255 per share.
If you want an idea of the stock's long-term wealth-creating power, just look at what it has already done over the past two decades.
An investor who bought Realty Income in 1999 would now be receiving a yield-on-cost of 26% on their initial investment. And with a dividend payback of 300%, they would have already recouped their outlay three times over from dividends alone -- not counting share price appreciation.
It's no wonder then that the company bills itself as "the monthly dividend company."
Action to Take
Realty Income remains one of my favorite income-producing stocks.
My High-Yield Investing subscribers and I have held Realty Income in our portfolio for more than five years. In that time, we've earned more than 100% in total returns while our yield-on-cost has risen to 6.7%.
And with a track record like this, I think we'll see plenty more dividend increases and share price gains in the future.
Management invests an average of $1.5 billion each year to acquire 400-500 new properties. By the way, the company is very selective, pulling the trigger on just 5% of the deals it runs across (meaning 19 out of every 20 opportunities reviewed are rejected).
More properties equal additional funds from operation (FFO) equal higher dividends. This winning formula allows for a prudent 3% to 4% step-up in dividends each year.
(This article originally appeared on StreetAuthority.com.)