Realty Income offers stability, earning power

Income-seeking investors should take a look at real estate investment trusts (REITs), as they’re required to pay out at least 90 percent of their income in dividends. A fine REIT to consider is Realty Income Corp. (NYSE: O), specializing in commercial properties and paying out a growing monthly dividend.

Realty Income acquires free-standing retail properties all over the United States (it owns more than 4,000), which it leases to high-quality tenants, most of which represent national brands such as Walgreens, FedEx and Dollar General. While it’s true that retail real estate can be sensitive to recessions and rising interest rates, Realty Income’s strong and diverse group of tenants has kept year-end occupancy high – recently around 98 percent and above 96 percent since 1969.

Further contributing to its stability is that most of Realty Income’s tenants are on long-term ‘triple-net’ leases, which have rent increases built in and hold the tenants responsible for variable expenses such as taxes, insurance and maintenance. All Realty Income has to do is collect a rent check.

Realty Income has a 20-year track record of outstanding performance as a public company, including 70 consecutive quarterly dividend increases (it recently yielded 4.9 percent) and an exceptional 17.1 percent average annual return. Better still, Realty Income has suffered a pullback, dropping more than 12 percent since February, making this an appealing buying opportunity.

Ask the Fool

Q: What’s the best way to start investing in stocks if you don’t know much about it and don’t have much money? – H.D., Walnut Creek, California

A: A great way to begin is simply to start learning more about it. You don’t want to be nervous and uneasy about where you’re putting your few available dollars.

Books such as ‘The Little Book of Common Sense Investing’ by John Bogle (Wiley, $25) and ‘The Five Rules for Successful Stock Investing’ by Pat Dorsey (Wiley, $20) can help you understand the world of stocks and mutual funds.

Online, click over to fool.com/how-to-invest/index.aspx and morningstar.com to learn the basics and more. When you’re ready to open a brokerage account, find a good one at consumersearch.com/online- brokers or broker.fool.com.

If you end up deciding that you don’t want to study and carefully select stocks or funds on your own, consider just parking your long-term money in one or more broad-market index funds, such as one based on the S&P 500. Often charging very low fees, they’re a great way to keep up with the market’s growth. Learn more at investopedia.com/terms/i/ indexfund.asp and fool.com/investing/basics/ index.aspx.

Q: What are ‘liar loans’? – R.G., Wilton, Connecticut

A: Liar loans, which got press coverage during the recent financial crisis, are loans based not on documented necessary information (such as the borrower’s income or assets), but mainly on the say-so of the borrower. These low-documentation or ‘no-doc’ loans tend to be subprime ones, as many borrowers aren’t always truthful about their financial conditions, resulting in defaults. While these loans have helped many good people secure loans, they’ve also been abused by opportunistic lenders and borrowers – thus, the term ‘liar loan.’

My dumbest investment

My dumbest investment was selling all my shares of Facebook when they were at about $26 apiece back in 2013. That was about a week before the shares surged to $34 and beyond. I sold pretty much because I had become bored with the stock. – B.B., Long Grove, Illinois

The Fool responds: Ouch. Facebook’s shares were recently trading near $80, so you missed out on more than tripling your money – so far. It’s helpful to remember that there are good and bad reasons for selling a stock. Boredom isn’t a great reason, because some stocks that will be great long-term performers can temporarily slump. No stock will go up in a straight line.

It would have made sense to sell your shares, though, if you’d found a different investment that seemed much more promising to you, or if you’d lost your faith in Facebook’s future. This is why it’s important to keep up with your holdings’ progress and developments, so that you’ll notice when their futures start looking brighter or dimmer.

Facebook’s stock isn’t for the faint of heart, but many analysts and investors are bullish on it, even at recent levels. As of the end of March, the company had more than 1.4 billion monthly active users. With such a huge base, Facebook has a lot of opportunity to sell advertising and to monetize its gobs of accounts in other ways.