We recently compiled a list of the 7 Best Stocks to Buy for Passive Income. In this article, we are going to take a look at where Realty Income Corporation (NYSE:O) stands against the other good stocks to buy for passive income.
With rising costs in today’s world, people are constantly searching for ways to earn additional income. To do this, many rely on side hustles to make ends meet. A recent survey of 2,300 people by Bankrate revealed that over a third (36%) of US adults have a side job. This trend is proving increasingly profitable. In 2023, side hustles brought in an extra $810 per month on average; this year, that figure has grown to $891.
While side hustles have proven profitable for many, some individuals prefer earning income passively rather than through additional work. During the 2020 pandemic, vending machines emerged as a popular passive income idea. From 2019 to 2023, mentions of passive income and vending machines on platforms like X and Instagram more than tripled and grew sixfold, respectively, according to the social media management company Sprinklr. Google searches for passive income also surged by about 75% during that time. Although many Americans are earning money from this investment, its long-term success has yet to be fully proven.
The concept of earning passive income becomes more straightforward and clear through investing in stocks, particularly dividend equities. These investments have already demonstrated their value, consistently delivering strong returns in the past. Over the years, the portion of personal income derived from dividends has gradually risen, making them a significant source of earnings. As reported by S&P Dow Jones Indices, dividend income has grown from 2.68% in the fourth quarter of 1980 to 7.88% in the second quarter of 2024, while interest income has dropped from 14.58% to 7.61% during the same timeframe. The report also mentioned that since 1936, dividends have contributed to over one-third of the total returns from the broader market, while capital gains have accounted for the remaining two-thirds.
Also read: 12 Best Long-Term Stocks to Buy According To Warren Buffett
Dividend stocks with higher yields often attract investors. In addition, companies that have consistently increased their payouts over the years are excellent for generating passive income. As long as they maintain this trend, they offer a growing stream of income, often with less volatility than regular stocks. While these stocks may not always provide the highest yields compared to other dividend-paying options, patient investors who choose companies that raise their dividends consistently, regardless of market conditions, can eventually enjoy income streams that surpass the returns from bonds.
The growing significance of dividend stocks is evident in the steady increase in payouts by companies worldwide. Global income investors experienced a robust second quarter of 2024, with payouts rising 5.8% to a record high of $606.1 billion, according to the latest Janus Henderson Global Dividend Index report. Following this strong performance and considering the anticipated contributions from new dividend payers, the forecast for 2024 dividends has been revised upward. It is now expected that global companies will distribute $1.74 trillion in dividends, a 6.4% increase from 2023 on an underlying basis (up from the previously forecasted 5.0%) and a headline increase of 4.7% (up from the earlier estimate of 3.9%). With this, we will have a look at the best stocks to buy for passive income.
Our Methodology:
For this list, we used a stock screener to identify dividend-paying companies with yields over 4.5% as of September 16. From this list, we selected companies known for consistently increasing their dividends, ideally those that have done so for at least 10 years. We then chose the top 7 stocks from this list based on the number of hedge funds holding stakes in them at the end of Q2 2024, according to Insider Monkey’s database.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points. (see more details here).
A modern city skyline with a REIT retail building at the center to symbolize the company’s reach.
Realty Income Corporation (NYSE:O)
Number of Hedge Fund Holders: 19
Dividend Yield as of September 16: 5.04%
Realty Income Corporation (NYSE:O) is a California-based real estate investment trust company that invests in commercial properties across the country. The company is a good option for income investors because it pays monthly dividends to shareholders. The stock is up by nearly 7% since the start of 2024. These strong returns followed a period of steady declines caused by rising interest rates after the pandemic. With interest rates remaining higher than they were before the pandemic and not expected to return to those lower levels soon, the company is well-positioned to capitalize on this new environment.
Realty Income Corporation (NYSE:O) has a strong balance sheet, which is mainly supported by its portfolio. In the second quarter of 2024, the company reported a strong occupancy rate of 98.8%, collected 105.7% of the rent from re-leased properties, and achieved a 0.2% increase in same-store rental revenue. Its portfolio, which mainly consists of single-tenant, net-leased properties, helps reduce financial pressure. With tenants including Wynn Resorts, Dollar General, and FedEx, the company benefits from a reliable revenue stream. In addition, it oversees over 15,000 commercial properties across 89 industries. Its resilience during recessions is demonstrated by its key sectors, such as supermarkets and convenience stores, which perform well regardless of economic conditions. The company’s revenue for the quarter came in at $1.28 billion, which showed a 29% growth from the same period last year.
Realty Income Corporation (NYSE:O) ended the quarter with approximately $443 million available in cash and cash equivalents. On September 10, the company declared a 0.2% hike in its monthly dividend to $0.2635 per share. This was the company’s 127th dividend increase since it went public in 1994. With a dividend growth streak of 30 years, O is one of the best stocks to buy for passive income. As of September 16, the stock has a dividend yield of 5.04%.
At the end of Q2 2024, 19 hedge funds tracked by Insider Monkey owned stakes in Realty Income Corporation (NYSE:O), down from 25 in the previous quarter. These stakes are collectively valued at more than $135.3 million. With over 1.6 million shares, AEW Capital Management was the company’s leading stakeholder in Q2.
Overall O ranks 7th on our list of the best stocks to buy for passive income. While we acknowledge the potential for O as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than O but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.
