Realty Income’s track record merits attention
A smart way to get rich by investing is to put your money in companies with strong dividend histories and great business models that consistently deliver market-beating performance. One such company is real estate investment trust (REIT) Realty Income Corp. (NYSE: O).
The company invests in commercial properties and rents them to stable, high-quality tenants, most of which (78 percent) are retail businesses. (Tenants include Walgreens, FedEx, Dollar General and Family Dollar.) The overall occupancy rate of its roughly 4,300 properties recently topped 98 percent (and has never been below 96 percent).
Generally, retail tenants have “triple-net” leases. This means that they’re responsible for paying property taxes, insurance and maintenance costs for the building. Plus, the lease terms are long, with annual rent increases built in. Realty Income’s average lease has 10.4 years left on it. This combination of low turnover and predictable rent has allowed the company to increase its dividend more than 75 times since it went public in 1994.
Over the past 20 years, Realty Income has averaged an impressive annual return of close to 17 percent, and it has performed well in both good markets and bad. It offers a dividend (recently yielding 4.8 percent) that’s paid monthly and has strong management. Learn more and see if it deserves a spot in your portfolio.
Ask the Fool
Q: What happens when one company buys another – does the acquired company’s stock price go up or down? – B.C., Lexington, Kentucky
A: It depends on the purchase price. If the acquiree’s current market value is around $5 billion (let’s say that amounts to a $50 share price), and it’s bought for $7 billion (or $70 per share), you can expect the stock price to jump on the news. When a company is very desirable, perhaps due to its technology, patents, growth prospects, etc., a buyer may have to outbid other interested companies. Struggling companies, though, are sometimes snapped up for relatively little when they’re down.
Meanwhile, if investors think that the acquiring company has made a smart purchase, its own price might also rise. But if they think the company overpaid or that it won’t see a good return on its investment, its price can fall.
It all depends on investor expectations and reactions to the deal. Some acquisitions turn out to be smart moves, while others end up regrettable.
Q: What’s an “unrealized gain”? – G.R., Strasburg, Virginia
A: When you sell an investment, you usually realize a gain or loss. If, for example, you buy stock in Tattoo Advertising Co. (ticker: YOWCH) at $40 per share and then sell it a few years later at $48, you’ll have a realized gain of $8 per share (less commission costs).
Meanwhile, perhaps you bought shares of Farm Dogs Inc. (ticker: BINGO) at $15 apiece and they’re now at $19. If you haven’t sold any shares, you’ve got an unrealized gain (or “paper profit”) of $4 per share. Since you haven’t actually sold the holding, it’s your profit in theory only, and an unrealized gain.
My dumbest investment
About a year and a half ago, I was in a difficult situation and decided to invest in two penny stocks hyped in an unsolicited email. I knew better, but was stressed out. I walked straight into a pump-and-dump scheme.
I still do not know how I managed to persuade myself to buy, and ever since have been avoiding thinking about it. I learned never to invest when distracted and stressed, and to remind myself before each trade that if it looks too good to be true, it probably is. I also learned never to trust email from people I do not know. – I.P., online
The Fool responds: Those lessons will serve you well. For those who don’t know, pumping and dumping is a scheme often carried out with risky and volatile penny stocks. A scammer buys a lot of a penny stock and then hypes it, perhaps online or via email. As naive investors pile in, the stock rises. Then the scammer sells it, and his selling triggers a big drop in the price. The scammer profits and the unsuspecting are left with big losses.