Reuben Gregg Brewer, The Motley Fool
5 min read
Realty Income (NYSE: O) has increased its dividend annually for 32 years. That’s an impressive streak, but it is actually shorter than the 50+ years of annual dividend increases that Dividend Kings Federal Realty (NYSE: FRT), PepsiCo (NASDAQ: PEP), and Hormel (NYSE: HRL) have rewarded investors with. And all of these stocks have yields above 4%. Here’s why you may want to jump aboard and buy one or all of them before November draws to a close.
What’s so important about 4%?
Dividend investors like 4% yields. The reason is more emotional than anything else and relates to the 4% withdrawal rule. The 4% rule is a rule of thumb that says you can withdraw 4% from your savings in retirement without running out of money. That’s great, but what if your stock portfolio generated an average yield of 4%? Then you would never have to withdraw any money at all. And thus, dividend investors like stocks with 4% yields.
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As of this writing, Federal Realty’s yield is hovering right around 4%, PepsiCo’s is 4.1%, Hormel’s is 5.2%, and Realty Income tops the list at 5.4%. Don’t read too much into those yields, because Hormel and PepsiCo are probably higher-risk options than Federal Realty and Realty Income.
Buy some boring real estate
Federal Realty and Realty Income are both industry-leading real estate investment trusts (REITs). Both focus on retail-oriented properties, but they operate in different niches of the REIT sector. Federal Realty, the only Dividend King REIT, owns strip malls and mixed-use properties. Realty Income owns single-tenant properties and uses a net lease approach. Because their assets don’t overlap, they are complementary holdings.
Federal Realty is a sharpshooter with a portfolio that is typically around 100 properties. It focuses on owning well-located assets with sizable, wealthy populations nearby. It spends a great deal of time and money to ensure that its properties are well maintained and provide modern amenities that customers and tenants want. This Dividend King is a solid choice for conservative dividend investors who favor a buy-and-hold approach.
Realty Income focuses on sale-leaseback transactions that primarily serve as financing for the seller, who then becomes a tenant. Scale is vital, and the REIT is among the largest in the net lease space, with a portfolio of more than 15,500 properties. It can take on transactions that smaller peers couldn’t handle. It also has an investment-grade balance sheet, so it tends to have an advantage in accessing capital markets. That helps it to bid aggressively on properties.
