Only about 25 S&P 500 stocks now offer a dividend yield higher than the 10-year Treasury, which sits near a 19-year high of roughly 5%. Analyst James Brumley names Realty Income, at a 5.8% forward yield, as the pick worth buying even against that bond competition.
Treasury bonds have turned into a real rival for dividend stocks, and few S&P 500 names can still keep up. The 10-year Treasury yield stands near 5%, a 19-year high, dwarfing the S&P 500's average dividend yield of just over 1%. Motley Fool analyst James Brumley singles out Realty Income, a REIT with a forward yield of 5.8%, as the exception worth buying anyway.
Why Realty Income clears the bar
Realty Income is a landlord to consumer-facing tenants such as Walmart, CVS, Family Dollar, and Dollar General, without running any consumer-facing business itself. Its occupancy rate sits near 99% across 15,500 properties, a sign its tenant base has stayed resilient even as brick-and-mortar retail competes with online shopping.
As a Treasury bonds alternative, the stock leans on its structure as a real estate investment trust: passing most rental profits to shareholders as dividends avoids the double taxation that ordinary corporations face. Realty Income has paid a dividend every year since its 1969 founding and has raised its annualized per-share payout every year for the past 31 years.
Unlike most dividend stocks, it pays monthly rather than quarterly, a schedule that lines up more closely with recurring bills.
The catch
Realty Income still trades like any other stock, and capital appreciation is not guaranteed. Because it depends on borrowing to fund new property purchases, the stock is highly sensitive to high or rising interest rates. That sensitivity is a big reason the shares have made little net progress since early 2020, when the COVID-19 pandemic was in full swing.
Even so, Brumley argues the yield and its steady growth make Realty Income one of the few longer-term income holdings he would still buy over locking in a 5% rate for a 10-year stretch with government-backed bonds.
Source: The Motley Fool
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