If I Could Buy and Hold Only a Single Dividend Stock, This Would Be It.

Dividend investors like me generally want to own financially strong companies with attractive yields supported by sustainable, and perhaps growing, dividends. That's what you'll get with this 5.6%-yielding stock. Here's why I'm thinking about adding more to this investment right now.

The only one I'm considering

I have a fairly large portfolio, comprising approximately 34 investments, which span stocks, closed-end funds, exchange-traded funds, and mutual funds. I'm actively trying to slim that list down as I get older, using pooled investment products to maintain diversification while holding a smaller number of high-conviction stocks. As I review my portfolio today, I realize that I have several small holdings that I need to make a decision about. Do I increase my stake or sell?

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There's one stock, however, that I have built up to a full position, and I'm actually considering adding to. In other words, I may end up overweighting this holding. It's the only stock I'm considering in this way. That stock is Realty Income (NYSE: O). I have a somewhat interesting history with this company.

I bought it years ago when it was yielding 10%. I sold it when that yield dipped below 4%, reasoning that the valuation didn't make sense. I regretted that choice as I looked back because the real estate investment trust (REIT) is so well run. I ended up owning Realty Income again when it acquired another REIT I owned. I have no plans to sell it again, but, as noted, I may buy some more.

What does Realty Income do?

Realty Income is the largest net lease REIT, with a focus on single-tenant retail assets. A net lease requires the tenant to pay for most property-level operating costs. Although any single property is high risk, the approach is low risk when done at scale. Realty Income owns over 15,500 properties. The risk is very low.

The main focus is on single-tenant retail properties, which are generally easy to buy, sell, and retenant as needed. However, Realty Income also has exposure to industrial assets, such as warehouses, and a diverse collection of other properties that don't fit neatly into a single category, including casinos, vineyards, and data centers. Retail accounts for around 80% of the portfolio, industrial makes up 15%, and the rest falls into what is best described as "other."

However, this isn't the only important diversification breakdown to understand. Realty Income has been increasingly investing in Europe, where the net lease approach is fairly new. Around 82% of rents come from the United States, with the rest derived from Europe. That's not all that's going on, either. Realty Income has been venturing into lending and is building an asset management business for institutional investors, both of which leverage its existing capabilities.

Ultimately, the company is a major industry player that is building a platform for future growth. Notably, the foundation is very strong, as the REIT has an investment-grade-rated balance sheet. The adjusted funds from operations payout ratio is also quite reasonable at roughly 75%. For an industrial company, that would be a worrying number, but for a REIT that makes its tenants pay for most property-level operating costs, it's totally fine.

The kicker is Realty Income's dividend

The final reason I'm considering increasing my investment in Realty Income is its dividend. It has increased annually for 30 years and quarterly for 112 quarters. The yield is currently 5.6%, which is five times the 1.1% yield of the S&P 500 index and well above the 3.9% yield of the average REIT. Realty Income's yield is also near the high end of Realty Income's 10-year yield range.

The caveat with Realty Income is that dividend growth tends to be fairly slow. Over the past 30 years, the dividend growth rate was around 4% or so. However, that's enough to edge out the historical rate of inflation growth. If you don't mind owning a high-yield tortoise, Realty Income could be the one stock to buy (or double down on) today.

Reuben Gregg Brewer has positions in Realty Income. The Motley Fool has positions in and recommends Realty Income. The Motley Fool has a disclosure policy.