Key Points
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Tech companies can make great dividend growth stocks.
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Realty Income offers growth, plus a higher yield and a more frequent payment schedule.
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The REIT’s features make it an ideal income stock.
- 10 stocks we like better than Realty Income ›
I think Realty Income (NYSE: O), not a tech stock like Microsoft (NASDAQ: MSFT) or Apple (NASDAQ: AAPL), is the best dividend stock to buy for passive income. While tech companies can deliver growth, Realty Income provides income investors with growth and two things tech stocks don’t offer: yield and monthly payments.
If generating passive income is your goal, the real estate investment trust’s (REIT) high-yielding (over 5%) and steadily rising monthly dividend stands out as the best option.
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Why not tech dividend stocks?
Tech stocks can actually make great dividend stocks. Many have excellent records of growing their dividends. For example, Microsoft has increased its dividend for more than 20 straight years. It has grown its payout at a 9.7% compound annual rate over the past decade, including by 10% last September. Meanwhile, Apple has delivered 15 years of annual dividend increases, growing its payout at a 7% compound annual rate over the past decade, including 4% earlier this year.
The issue is their current yields. Microsoft’s is 0.8%, while Apple’s is 0.3%. That’s not a lot of income. It’s below the S&P 500‘s roughly 1% yield. While those dividends will likely continue to grow at solid rates, it will take a long time before either can provide investors with a meaningful passive income stream. For example, if Microsoft continues to grow its dividend at a 10% compound annual rate over the next decade, an investor’s yield on cost would only be 2.1% in 10 years. Meanwhile, Apple’s would only rise to 0.6% if it continues to grow its payout at a 7% compound annual rate over the next 10 years.
What makes Realty Income the best dividend stock
Realty Income‘s stated mission is to “deliver dependable monthly dividends that increase over time.” The REIT takes being a monthly dividend stock seriously. It calls itself The Monthly Dividend Company®, a registered trademark of Realty Income. It has made 674 consecutive monthly dividends throughout its history. For income investors, that payment frequency trumps the quarterly schedules of most other companies, including tech stocks.
The other part of its mission is to increase its dividend over time. With 135 increases since its public market listing in 1994, including the last 115 consecutive quarters, it’s certainly delivering on that mission. The REIT has grown its dividend at a 4.1% compound annual rate since going public. While it’s not growing its payout as fast as most tech stocks, it’s still delivering dependable growth, and with more frequency than tech stocks, which aim for annual dividend increases.
Finally, as already highlighted, Realty Income offers a much higher dividend yield than most tech stocks, at over 5%. That’s not a high-risk income stream either. Realty Income generates very stable cash flow backed by a diversified portfolio of real estate properties secured by long-term triple-net leases. It has a conservative dividend payout ratio for a REIT (less than 75% of its adjusted funds from operations). It also has an A-rated balance sheet, a testament to its financial strength.
A top dividend stock typically combines four things: An attractive yield, a conservative payout ratio, a multi-year track record of payment growth, and a strong financial profile. Realty Income checks every box. Its 5% yield is several times the S&P 500’s level. Its 75% payout ratio is conservative for a REIT. It has delivered more than 30 years of dividend growth. And to top it all off, it has a fortress financial profile.
Realty Income is the best dividend stock for income
Realty Income won’t grow its dividend as fast as tech stocks and doesn’t have as high a yield as some other dividend stocks. It’s also not without risk, including the impact of interest rates on its ability to borrow money to fund new investments.
However, when you look at the total package, including its monthly payments, Realty Income stands out as the best dividend stock to buy for those seeking passive income. It provides a high-yielding monthly income stream that tech stocks can’t match. Meanwhile, it offers steady growth, which comes more frequently than the annual increases of most other companies. These features make Realty Income the quintessential dividend stock.
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Matt DiLallo has positions in Apple and Realty Income and has the following options: short September 2026 $300 calls on Apple. The Motley Fool has positions in and recommends Apple, Microsoft, and Realty Income. The Motley Fool has a disclosure policy.
