The Best High-Yield REIT to Buy With $1,000 Right Now
Key Points
Realty Income pays a 5%-yielding dividend that it has historically grown at a more than 4% compound annual rate.
The REIT is in a strong position to continue growing its dividend in the future.
That growing dividend could turn a $1,000 investment into a much larger future nest egg.
Investing in real estate investment trusts (REITs) can be a great way to build long-term wealth. They typically offer higher-yielding dividends, which grow over time. That growth and income combo can add up to significant total returns over the long term.
Realty Income (NYSE: O) is the perfect example of the wealth-creating power of a top high-yielding REIT. It has grown its high-yielding payout at a 4.1% compound annual rate since its public market listing in 1994, supporting a strong 13.6% annualized total return. With more growth likely, it's one of the best high-dividend REITs to buy with $1,000 right now.
Where to invest $1,000 right now? Our analyst team just revealed what they believe are the 10 best stocks to buy right now, when you join Stock Advisor. See the stocks »
Image source: Getty Images.
A blend of yield and growth
Realty Income pays a monthly dividend that currently yields around 5%. That's close to the REIT's historical average over the past couple of decades:
O Dividend Yield data by YCharts
The REIT has grown its dividend at a 4.1% compound annual rate, easily supported by income growth. It has grown its adjusted funds from operations (AFFO) at a mid-single-digit compound annual growth rate throughout its history (4.5% from 1996 through 2012 before accelerating to 5.9% from 2013 to 2025).
Realty Income is in a strong position to continue growing its high-yielding payout at a mid-single-digit compound annual rate. Several factors drive that view, including a steadily falling dividend payout ratio (AFFO per share has grown faster than the dividend), enabling it to retain more cash to fund new investments. The REIT also has an increasingly diversified portfolio and has built out new funding sources by expanding its private capital ecosystem. These factors position it to deliver even faster AFFO per-share growth going forward.
Compounding a $1,000 investment into a lot more wealth
Even though Realty Income could grow faster in the future, it doesn't need to hit the accelerator to create a lot of value for shareholders over the long term. Here's a look at the potential growth of a $1,000 investment in Realty Income over the years, assuming the REIT grows its dividend and AFFO per share at more conservative rates (4% and 5%, respectively):
Data source: Author's calculations. Chart by the author.
The first scenario assumes the investor doesn't reinvest their dividends. Under this assumption, they would collect more than $2,800 in cumulative dividend income over 30 years, while the value of their shares would rise to over $4,300. That's a total return of more than 600%. The second scenario shows the power of dividend investment. This reinvestment would grow the initial $1,000 investment to nearly $14,700 in 30 years, for a total return of almost 1,400%. That's not a bad return from a lower-risk, income-focused investment.
Realty Income is a potential wealth-creating machine
Realty Income is one of the largest, financially strongest, and most diversified REITs. These factors put it in a strong position to continue increasing its high-yielding dividend. That growth and income combo can really compound over the long term, potentially turning a $1,000 investment today into a much larger future nest egg.
Matt DiLallo has positions in Realty Income. The Motley Fool has positions in and recommends Realty Income. The Motley Fool has a disclosure policy.