Could This Bear Market Buy Help You Become a Millionaire?

If you follow the financial media, it would seem like a bear market is among the worst things that can happen. To be fair, bear markets are pretty bad, noting that they represent a 20% or greater decline in the broader market averages like the S&P 500 index (SNPINDEX: ^GSPC). But bear markets also open up buying opportunities for investors that think long term. And here's the most important thing -- individual stocks can go through their own private bear markets. Which is why you'll want to take a closer look at this high-yield dividend stock today.

A foundation that builds wealth over time

To get right to the point, shares of Realty Income (NYSE: O) are down around 25% from their 2020 peak. That is soundly in bear market territory. Meanwhile, the stock is offering up a highly attractive 5.6% yield. That compares very favorably to the S&P 500 index's yield of just 1.2% and the yield of the average real estate investment trust (REIT), which is around 4.1%.

Image source: Getty Images.

Don't let that high yield scare you off. Realty Income has increased its dividend every single year for three decades (and counting). Within that streak the REIT has raised its dividend every single quarter for 110 quarters. This is a very reliable dividend stock, noting that dividend is paid monthly, making it something of a paycheck replacement.

The reliability is buttressed by an investment-grade-rated balance sheet. And the adjusted funds from operations (FFO) payout ratio is a very reasonable 75% or so. So there is a strong financial foundation here to back that dividend.

Business wise, Realty Income is the largest net lease REIT, with a market cap of around $50 billion. It owns over 15,600 properties across North America and Europe. Although it focuses most heavily on retail assets, it also has exposure to industrial assets and a growing collection of unique property types (including casinos and data centers). It is one of the most diversified REITs you can buy and its large size generally affords the company advantaged access to capital and the ability to take on deals that its peers couldn't manage alone, including buying smaller competitors.

How is a dividend stock going to make you a millionaire?

Even if you believe that Realty Income's personal bear market has opened up a buying opportunity, you might still be skeptical. High-yield stocks aren't exactly known as millionaire makers; they are the types of stocks that retirees buy to help pay for living expenses after they stop working. That's true, but don't underestimate the value of a steadily growing dividend.

O data by YCharts

The chart above shows what a $75,000 investment in Realty Income would have turned into over time. Notice that the end result is over $1 million. Not bad for a boring high-yield dividend stock. To be fair, that's the past and Realty Income is a much larger company today than it was way back in the mid 1990s. That said, there are REITs that are roughly twice the size of Realty Income, so there's no reason to believe it can't continue to grow in the years ahead.

And then there's a more subtle benefit that Realty Income provides to a portfolio. It can be a foundational investment that allows you to buy more aggressive investments. That's particularly true if you are a dividend lover, since some of the fastest-growing dividends come from stocks with the lowest yields.

Putting Realty Income in the mix lets you go down the yield spectrum without having to reduce the overall income expectation you have for your broader portfolio. So even if Realty Income doesn't get you to seven figures all on its own, it can be an important part of a diversified portfolio that does.

Take this opportunity while it lasts

Realty Income is a very well-run REIT. The fact that its stock price is still so far from its peak is an opportunity for long-term investors to buy a reliable dividend stock while it has an attractively high yield. If you are looking to build a million-dollar nest egg or are trying to live off the nest egg you have built, this reliable dividend stock should be on your short list right now.

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

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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.