Key Points
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Realty Income is one of my largest stock positions, and it is well-positioned to deliver excellent long-term total returns.
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Prologis is one of the largest real estate owners in the world and has favorable growth tailwinds.
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Both REITs have excellent financial strength and could deliver market-beating total returns.
- 10 stocks we like better than Realty Income ›
I own about 40 stocks in my portfolio, and while I believe in all the companies I own, there are only a few I’d be comfortable doubling my investment in. However, there are two dividend stocks in particular that are exceptions. Both of these are already rather large positions in my portfolio, but if I had cash on the sidelines and wanted to grow my passive income, I’d be completely fine doubling my positions in these two.
A monthly dividend machine
In full disclosure, Realty Income (NYSE: O) is already one of my biggest stock investments. And I would still be comfortable doubling my position.
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If you aren’t familiar, Realty Income is a real estate investment trust, or REIT, that specializes in freestanding commercial real estate. It owns more than 15,000 properties, most of which are occupied by retail tenants, and it also has industrial, gaming, and agricultural properties in its portfolio.
Image source: Getty Images.
The business model is designed for excellent total returns and a growing income stream. Tenants sign long-term net leases, which makes them responsible for taxes, insurance, and maintenance, and there is typically an annual rent increase built in. And most of Realty Income’s tenants are top-quality, recession-resistant businesses like Dollar General (NYSE: DG), FedEx (NYSE: FDX), and Walgreens, all of which are among the largest tenants.
Realty Income has averaged a 13.3% total return since it went public in 1994, has a 5.1% dividend yield paid monthly, and has increased its dividend for 114 consecutive quarters.
Big tailwinds and financial flexibility
Industrial REIT Prologis (NYSE: PLD) is one of the world’s largest real estate owners, with almost 1.2 billion square feet of rentable space worldwide. To put that in perspective, consider that the space Prologis owns is roughly double the size of Manhattan.
This massive REIT owns logistics properties. If you’ve ever seen one of those massive Amazon (NASDAQ: AMZN) distribution centers, that’s the type of property I’m talking about. Other top tenants include FedEx (NYSE: FDX) and DHL, but there are thousands of other businesses that rely on Prologis for their logistics real estate needs.
Prologis’ management has said that the business is at an inflection point. Essentially, during the COVID-19 era, when most retail was forced to shift to e-commerce, demand for industrial properties spiked, leading to oversupply conditions. However, we’re seeing supply and demand approaching equilibrium, and the e-commerce industry is likely to steadily expand for decades to come. Prologis has the financial strength to capitalize on improving conditions and opportunities.
In addition to its core logistics real estate business, Prologis has been quietly leveraging its expertise (and balance sheet) to invest in data center properties, which could create a rapidly growing second revenue stream.
Should you buy stock in Realty Income right now?
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Matt Frankel, CFP has positions in Amazon, Prologis, and Realty Income. The Motley Fool has positions in and recommends Amazon, Prologis, and Realty Income. The Motley Fool recommends FedEx. The Motley Fool has a disclosure policy.
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