“Sorry. Your card was declined.”
It’s embarrassing to find out you can’t pay for something… especially if you’ve already eaten it.
That’s the situation our federal government finds itself in right now.
Congress ordered – and ate – a bunch of entrees. And now, it can’t pay up.
The Treasury hit the $31.4 trillion debt ceiling set by Congress back in January. Up till now, it has been using accounting tricks to find loose change to keep everything running.
But it’s about to run out of tricks.
According to Secretary of the Treasury Janet Yellen, the U.S. could run out of cash by June 1. After that, the government wouldn’t be able to pay everyone what they’re owed on time.
That means benefits like Social Security and Medicaid might be cut or delayed. And government employees might not get their paychecks on time.
On top of that, a default would likely make it more expensive for the government to borrow money in the future.
It could tip the economy into recession and cause the stock market to crash.
The thought of the U.S. defaulting on its debt is pretty scary. Politicians will be under immense pressure to resolve the situation as quickly as possible.
But this situation is also an opportunity for those who are prepared. If the markets sell off due to the headlines, there will be high-quality companies trading at a discount.
Here at Intelligent Income Daily, we’re focused on finding the safest income investments in the market and helping you buy them at a bargain price.
Today, I want to tell you about one of those opportunities. It’s my favorite high-quality real estate investment trust (REIT). I’ll explain how it has a resilient portfolio of properties that’s recession-ready and why it’s one of the most reliable sources of income in the market.
The Monthly Dividend Company
Have you heard of the Monthly Dividend Company™?
That’s Realty Income (O). It’s so serious about that payout schedule, it’s trademarked that name.
As it’s shown over the past 30 years, nothing’s getting in the way of that monthly check.
But how does Realty Income make sure it’s always able to pay its dividend? By being the landlord to some of the most reliable businesses on the planet.
You see, Realty Income is a REIT that specializes in net leases. Those are rental contracts where the tenant is responsible for paying for property taxes, insurance, and maintenance – in addition to rent and utilities.
Realty Income is very picky in the kinds of properties it buys and who it leases to. It typically agrees to just 5-9% of the opportunities it comes across every year.
And its strategy is to find tenants with businesses that are service-oriented, have a low price point, or are non-discretionary.
Some examples are grocery stores like Kroger and Walmart… pharmacies like Walgreens and CVS… dollar stores like Dollar General and Family Dollar… and convenience stores like 7-Eleven.
That might sound boring to you. But guess what? Those boring businesses are the most reliable ones that keep paying the rent in recessions.
Why You Should Add (O) to Your Portfolio
Realty Income gave its most recent earnings report last week.
It raised guidance for the year, and its portfolio is 99% occupied. It was also able to issue long-term debt at 5% interest rates and has been buying properties that return 7% in rent. That’s a healthy spread over its cost of capital.
Even if worries about the debt ceiling cause shares to sell off, Realty Income will have a strong portfolio of recession-resistant businesses that will keep paying the rent. That means that its dividend will be well protected.
Realty Income has been growing its dividend every year since its IPO in 1994. That means it has been through multiple recessions, bank collapses in the Great Financial Crisis, a pandemic, and the last debt ceiling crisis in 2011, all while giving its shareholders reliable dividends every month and a small raise every quarter.
So regardless of what happens with the debt ceiling in a few weeks, Realty Income should keep its title as one of the most reliable dividend stocks.
In fact, it’s one of the key holdings in the portfolio of my premium service, the Intelligent Income Investor.
Right now, Realty Income shares trade at less than 16X adjusted funds from operations, which is considerably lower than its long-term average of 19X. It’s a rare chance to get an attractive 5% yield on this top-quality REIT.
To find out which other dividend stocks I like, check out Intelligent Income Investor. As fear around the debt ceiling looms, we’ll use this opportunity to buy more shares of the safest dividend-paying companies in our model portfolio. The ones that will allow us to keep the income rolling in, even in a worst-case scenario.
To find out more, click here
Happy SWAN (sleep well at night) investing,
Brad Thomas
Editor, Intelligent Income Daily