This Reliable Dividend Stock Is Up Over 8,851% Since Its IPO. Here's Why It's a Buy Now.

Enormous sums of money flowing through Wall Street banks have been attracting the world's most talented financial minds for generations. You might be shocked to learn that in any given year, most fail to outperform the benchmark S&P 500 (SNPINDEX: ^GSPC) index.

Last year, a little over one-fifth of actively managed U.S. funds outperformed the benchmark, and that figure gets much slimmer over time. Over the past 20 years, absolute returns from all but 8% of all large-cap funds in the U.S. underperformed the benchmark.

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The average American fund manager can't hold a candle to the S&P 500 index, but there's a reliable dividend stock that has outperformed the benchmark by a mile. Since its initial public offering (IPO) in 1994, Realty Income (NYSE: O) stock has risen a little faster than the S&P 500 index.

If we add up monthly dividend payments that have risen every quarter since its IPO, Realty Income has trounced the benchmark with an 8,780% total return. Folks who invested $1,000 into the SPDR S&P 500 ETF Trust at the time of Realty Income's IPO and kept the dividends have seen their investment grow past $22,000.

The benchmark index has produced magnificent gains, but it can't hold a candle to Realty Income's long-term returns. Folks who invested $1,000 in Realty Income in 1994 are already halfway toward a down payment on a starter home in California.

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How Realty Income has outperformed the S&P 500 for decades

Realty Income is a real estate investment trust (REIT) that finished March with 15,627 commercial properties in its portfolio. Instead of managing its properties, it has tenants such as Tractor Supply and Home Depot sign net leases that make them responsible for taxes, maintenance, and any other variable costs associated with building ownership.

Realty Income's weighted average remaining lease term is over nine years, and investors can look forward to this REIT recapturing those tenants and raising their rent further when their existing leases expire. Since 1996, the company has released about 6,000 properties at a renewal recapture rate of 103%.

With annual rent escalators written into long-term leases and an impressive lease renewal recapture rate, Realty Income's cash flows are highly predictable. Recently, the company raised its monthly dividend for the 131st time to $0.269 per share.

Despite steadily raising its payout for over 30 years, the well-managed REIT earns enough to raise it much further. Management posted first-quarter adjusted funds from operations (FFO), a proxy for earnings used to evaluate REITs, that rose to $1.06 per share. That's more than it needs to comfortably meet a dividend commitment currently set at $0.807 per quarter.

Why Realty Income can continue beating the market

The bond rating agencies adore Realty Income's portfolio of over 15,000 buildings and its track record for steadily growing earnings that goes back to 1970. An A3 rating from Moody's and an A- rating from S&P Global recently helped the company borrow 1.3 billion worth of euros with terms that will make your head spin. The notes it sold don't need to be repaid for about eight years on average, and the average yield to maturity is just 3.69%.

Access to heaps of super-cheap capital is an advantage that Realty Income's smaller peers aren't likely to duplicate next year or in the next decade. This means it can offer competitive terms and continue attracting the best tenants for the long run.

Even after 55 years in business, the vast majority of commercial buildings are still owned by the companies that operate them. In the U.S., less than 4% of the addressable market for net lease REITs was owned by Realty Income and its publicly traded peers. This figure is less than 0.1% in the E.U.

With a favorable competitive position that shouldn't be too difficult to maintain, and a huge addressable market, Realty Income could continue raising its dividend payout every three months for another 30 years. The yield it offers is already a juicy 5.6% at recent prices. Adding some shares of this reliable dividend payer to a diverse portfolio looks like a smart move for just about any investor right now.

Should you invest $1,000 in Realty Income right now?

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Cory Renauer has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Home Depot, Realty Income, and Tractor Supply. The Motley Fool recommends the following options: short July 2025 $54 calls on Tractor Supply. The Motley Fool has a disclosure policy.