Real estate investment trust Realty Income (NYSE: O) is a company that Aesop’s tortoise would be proud to own. Since listing on the New York Stock Exchange in 1994, it’s raised its dividend by 4.7 percent annually. That rate isn’t going to win any sprints, but it’s helped the stock deliver a whopping 2,700 percent return for investors who reinvested every dividend.
A slew of retail-store closings in recent quarters has pushed down Realty Income’s share price – and, therefore, raised its dividend yield. The stock recently yielded an appealing 5.4 percent. Retail closings are a valid concern, but selective tenant choices over the years have insulated this particular REIT from the fallout.
Nearly all of Realty Income’s properties are freestanding, single-tenant structures instead of shopping malls. Its largest tenants include Walgreens, LA Fitness, AMC Theatres, Walmart, Dollar General, FedEx and CVS.
Most importantly, Realty Income specializes in commercial properties rented on a “triple-net” lease basis, i.e., the lessee pays not only rent, but maintenance, insurance and property taxes, too. On top of that, Realty Income generally lets its properties on a long-term basis, with contracts that are in force for 10 to 20 years. This gives the company a reliable revenue stream that’s allowed it to make more than 570 consecutive monthly dividend payments to patient shareholders. It’s a promising candidate for your portfolio.
Ask the Fool
Q: Is a viatical settlement a good way to get some money? – K.W., Ocala, Florida
A: A viatical settlement is when an investor buys a terminally ill person’s life insurance policy.
If someone is expected to live only three more years and needs cash to pay for medical bills or anything else, he might sell his life insurance policy. If it’s set to pay $100,000 on his death, the buyer might pay, say, $66,000 for it. It sounds like a win-win plan, as the seller gets a big lump sum while still alive and the buyer can expect to receive $100,000 in about three years – roughly a 15 percent annual return.
But it’s not quite that simple. There are typically fees involved, and the sick person might live for many years, reducing the investment’s ultimate return. A cure or new treatment might even have him outliving the buyer. (Note, too, that there are related “life settlements,” focusing on older people and those not terminally ill.)
There have been many instances of fraud with these settlements, but they’ve become more regulated and are legal in most states. They can be win-win, offering both parties money, but they can be risky and can cause a little discomfort, too, with investors waiting for death. Learn more about them at sec.gov/answers/viaticalsettle.htm and at the viatical.org and lisa.org industry websites.
Q: Is it too late for me to refinance my mortgage? – K.R., Phoenix
A: Rates have been rising in recent years, but they’re still quite low. Depending on your current mortgage’s interest rate and some other factors, such as how long you plan to stay in the home, refinancing may still make good sense for you. Learn more at fool.com/mortgages and bankrate.com.
My dumbest investment
My dumbest investment was buying shares of JDS Uniphase near the top of the 2000 tech bubble in the stock market. ‘Nuff said.
How did it happen? Well, I was foolish (with a small f) and thought the 2000 boom would last forever. All I saw were clear skies as far as the eye could see. – S.C., Key West, Florida
The Fool responds: Back before the internet stock bubble burst, optical networking specialist JDS Uniphase was one of the biggest highfliers, topping $1,100 per share at one point and sporting a market value around $125 billion. Then it fell hard, dropping more than 99 percent and reaching about $2 per share in 2008.
The company recovered after that, and went through some changes. In 2015 it split itself into two companies – Lumentum, focusing on optical communications and commercial lasers, and Viavi Solutions, focusing on networking products and services, among other things. The two companies are still around, with respective recent market values of $2.9 billion and $2.3 billion.
The tech bubble bursting taught many new investors the danger of jumping into soaring stocks just because they’re soaring, without regard to their valuations. Many were so overvalued that they were likely to sink, but it can be hard for our brains to recognize and act on that. Remember that the best investing opportunities tend to be in great companies whose stocks have temporarily plunged.