Retirement Investing: How You Can Get Paid Every Month by America’s Biggest Corporations
This Company Provides a Reliable Monthly Income
Despite going through some rough times about a decade ago, the United States is still home to some of the most profitable companies on earth. The thing is, though, most of those profits are reserved for the wealthy one percent. While some of these company executives are taking home seven-figure bonuses every year, most Americans are living paycheck to paycheck. And with interest rates still low, saving for retirement seems just as difficult as it was during the last recession.
However, thanks to a tax loophole, there is a way for retirement investors to get some money from America’s biggest corporations. No, I’m not talking about being a shareholder of Wal-Mart Stores Inc (NYSE:WMT) or CVS Health Corp (NYSE:CVS). I’m talking about being their landlord.
Now, this may sound strange to you. Wal-Mart has an average store size of more than 100,000 square feet and CVS Pharmacies are often found in prime locations. So you may be wondering how it’s possible that the average American can have enough money to buy the real estate that houses these giant corporations.
Well, that has to do with something called real estate investment trusts, or REITs. These entities were created when President Dwight Eisenhower signed into law the REIT Act, contained in the Cigar Excise Tax Extension of 1960. REITs were established to give all investors the opportunity to invest in large-scale, diversified portfolios of income-producing real estate.
Many REITs trade on major stock exchanges and are required by law to distribute at least 90% of their taxable income to shareholders every year in the form of dividends. In return, they pay little to no income tax at the corporate level. Thanks to this pass-through structure, REITs can pass their profits directly to investors.
Now, let’s go back to Walmart and CVS. We know that these companies make billions of dollars in profits every year. What’s less talked about is that they pay millions of dollars in rent to a REIT called Realty Income Corp (NYSE:O).
Headquartered in San Diego, California, Realty Income has been in business since 1969. It was created with a very clear purpose: to provide investors with monthly dividends that increase over time. And during the past 48 years, the company has been delivering on that promise.
Realty Income has made 567 consecutive monthly dividend payments. Since the company’s listing on the New York Stock Exchange in 1994, it has delivered 93 dividend increases, the past 80 of which have been consecutive quarterly increases. (Source: “Monthly Dividend Commitment,” Realty Income Corp, last accessed October 24, 2017.)
The reason why Realty Income can deliver such strong dividend growth lies in its high-quality portfolio. The company has investments in more than 5,000 properties located in 49 states and Puerto Rico. Thanks to long-term net lease agreements with high-quality tenants, Realty Income can generate a predictable stream of rental income and pass that onto investors.
Of course, you can also buy shares of its tenant companies directly. However, most of them distribute quarterly rather than monthly. And their yields are not that impressive; WMT stock pays 2.32%, while CVS yields 2.63%. Realty Income, on the other hand, pays monthly dividends of $0.212 per share, which translates to an annual yield of 4.63%.
In fact, since the average yield of S&P 500 companies right now is just 1.88%, investors purchasing Realty Income shares today would lock in a yield more than double the benchmark’s average.
Mind you, Wal-Mart and CVS are just two of the high-profile U.S. companies that make regular payments to Realty Income. The company’s top 20 tenants also include Walgreens Boots Alliance Inc (NASDAQ:WBA), FedEx Corporation (NYSE:FDX), and Rite Aid Corporation (NYSE:RAD), just to name a few.
Don’t forget that real estate is known to be an inflation-proof business. As the price level increases over time, Realty Income would be earning higher rental income, which in turn would translate to bigger dividend checks for its shareholders.
Whether you are saving for retirement or already enjoying your golden years, Realty Income’s monthly dividends are certainly worth considering.