Investing in real estate can enhance portfolio diversification and generate passive income, leading to improved risk-adjusted returns. Many financial advisors suggest including real estate investment trusts, or REITs, for these benefits.
Realty Income, traded on the New York Stock Exchange under the symbol O, operates as a REIT with a portfolio of over 15,500 properties leased to nearly 1,650 tenants across 92 industries. The company focuses on net leases with major corporations, which provide predictable rental income as tenants handle operating costs like maintenance, taxes, and insurance.
Financially, Realty Income maintains a strong investment-grade credit rating and a conservative dividend payout ratio. This supports its ability to invest in income-producing properties during market downturns.
The REIT pays a monthly dividend with a current yield above 5%. It has increased this dividend for 113 consecutive quarters. Since its listing in 1994, Realty Income has achieved a compound annual total return of 13.7%.
The Schwab U.S. REIT ETF, listed as SCHH, offers broad exposure to the REIT sector by investing in commercial real estate REITs, excluding mortgage REITs. Its expense ratio is 0.07%.
The ETF holds more than 120 REITs, with its top ten holdings making up nearly half of net assets. Realty Income is its sixth-largest holding at 4.2% of assets. Healthcare REITs lead its sector allocation at 16.6%.
This ETF provides passive income with a trailing 12-month dividend yield of 3%. Distributions have varied over time but have increased long-term as underlying REITs raise dividends.
Realty Income is noted for passive income and sector exposure, while the Schwab ETF offers similar benefits with greater diversification. Both are presented as ways to add REIT advantages to portfolios.
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Disclosures note that Matt DiLallo holds positions in Realty Income, and The Motley Fool has positions in and recommends Realty Income, with a disclosure policy in place. The original article was published by The Motley Fool.