Almost no one becomes a millionaire overnight, but the great thing about the stock market is that it can help almost anyone become wealthy over time.
The S&P 500 has historically delivered a compound annualized return of 9% with dividends reinvested. With results like that, if you invested $1,000 a month every month for 25 years, you would have a portfolio worth more than $1 million.
Investing in an S&P 500 index fund is an easy way of getting results that closely track the index, but some stocks consistently outperform it, meaning you can increase your chances of getting to a $1 million portfolio even faster by picking stocks wisely.
One of those stocks that has beaten the S&P 500 over its history is Realty Income (NYSE: O).
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What is Realty Income?
Realty Income is a real estate investment trust (REIT) that owns a large portfolio of properties -- mostly stand-alone retail properties, which it typically leases to tenants in recession-resistant businesses like pharmacies and convenience stores.
The company uses a triple net lease approach, meaning that its tenants pay for their properties' maintenance, insurance, and property taxes. That helps insulate the REIT from risk and economic volatility. Realty Income says that about 90% of its total rent is "resilient to economic downturns and/or isolated from e-commerce pressures."
That business model makes Realty Income one of the lower-risk choices in the REIT industry, and that has paid off for investors. Including dividends reinvested, Realty Income has generated a compound annualized total return of 13.5%, and it has done so with less volatility than the S&P 500.
The company has accomplished that with a reliable business model, a strong dividend yield, and growth through new property acquisition. It has also purchased entire other REITs, including Spirit Realty. However, Realty Income still has ample growth opportunities in front of it.
The company has sourced $59 billion of acquisition opportunities since 2023, and it's expanding its footprint in Europe, which also presents a significant growth opportunity. For example, it acquired a number of properties from Decathlon, a popular sporting goods retailer, in a sale-leaseback transaction.
Meanwhile, Realty Income says it has total addressable markets in the multitrillion-dollar range in both the U.S. and Europe, giving it plenty of room in which to grow.
Dividend growth
Dividends can be a powerful component of an investor's wealth-building strategy. By reinvesting the payouts a company distributes to you back into its shares, you increase the number of shares you own, further boosting your dividend income and compounding your portfolio growth. That has historically been a great strategy with Realty Income.
The company has increased its dividend for 29 straight years -- and also 107 quarters in a row -- for a compound annual growth rate of 4.3%. That's an impressive track record.
Realty Income is also one of the few companies that pays dividends on a monthly rather than quarterly schedule, which is great for investors who are using their investment income to cover their living expenses. But it's also a benefit to those who are reinvesting their dividends as it allows them to add new shares more frequently.
At its current share price, the REIT's dividend now yields 5%, giving investors an opportunity to accelerate their portfolio's growth toward $1 million.
The current economic landscape
Beyond its strong business model and its reliable dividend hikes, there's another reason to invest in Realty Income right now. It looks well positioned to prosper in the current economic environment.
The Federal Reserve is expected to start cutting U.S. interest rates this month, and Realty Income should benefit from lower rates in two ways. First, investors who had been favoring bonds when rates were high are likely to rotate back into high-yield dividend stocks like Realty Income as bond yields fall. Indeed, that rotation already seems to be happening as the stock is up nearly 20% in the last two months.
The other advantage for the REIT is that lower market interest rates mean lower borrowing costs, which will make it easier for it to fund its acquisitions and refinance its debt.
Is Realty Income a buy?
If you're looking to build wealth over the long term, Realty Income looks like a great bet. It has a proven track record of steady growth, outperforming the S&P 500. It's a top dividend payer with a 5% yield. It has plenty of room to grow with a multitrillion-dollar addressable market. And it should benefit from lower interest rates.
Whether you're looking for a high dividend yield or long-term growth, Realty Income looks like a great stock to own.
Should you invest $1,000 in Realty Income right now?
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Jeremy Bowman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Realty Income. The Motley Fool has a disclosure policy.
