Latest / Dividend Investing with Fexingo: Income Stocks, Yield, and Long-Term Cash Flow Portfolios / How Realty Income Dividends Beat Bonds in July 2026
Transcript
- Lucas: Luna, I want to talk about a single dividend stock today — and I know we've done deep dives on a few others, but this one is particularly interesting right now because of where bond yields are. Luna: Which one? Lucas: Realty Income, ticker symbol O. It's the triple-net lease REIT, the one that bills itself as 'The Monthly Dividend Company.' As of this close, it's at sixty-three thirty-one a share, up about two-tenths of a percent over the last five days. Its dividend yield is roughly five point two percent. Luna: Okay, so the thirty-year Treasury closed at five point zero five percent today. That's basically the same yield. Why would anyone take the equity risk of a REIT when they can get a similar yield from a bond backed by the full faith and credit of the US government? Lucas: That's exactly the question I want to answer. And the short answer is: dividend growth. A thirty-year Treasury bond at five point zero five percent will pay you exactly that coupon for thirty years. The principal will fluctuate as rates move, but the coupon is fixed. Realty Income's dividend is not fixed — it grows. Luna: How much? Lucas: Over the past decade, Realty Income has grown its dividend per share at a compound annual growth rate of about two and a half percent. That's not huge — but it's consistent. And they've increased the dividend for a hundred and twenty-eight consecutive quarters. That's thirty-two years of uninterrupted growth. Luna: So that two and a half percent annual growth on top of a five point two percent starting yield gives you a running yield that climbs over time. Eventually, the bond's coupon is left in the dust. Lucas: Exactly. And we're in July 2026 with a steepening yield curve. The ten-year minus two-year spread has widened to thirty-eight basis points. That's up from thirty-five just a few days ago. In that environment, bond prices actually fall when long-term rates rise — you've got price risk. Realty Income's triple-net leases have built-in rent escalators, often tied to CPI or fixed percentages, so the income stream keeps up with inflation. Luna: Right, but isn't there a reason the stock barely moved in the last five days? It's up only two-tenths of a percent while the S&P 500 is up half a percent. The market seems to be pricing in some risk. Lucas: There's always risk. Realty Income depends on the credit quality of its tenants. If we hit a recession and tenants start defaulting, those dividend increases could slow or reverse. But the portfolio is diversified across about fifteen thousand properties in retail, industrial, and warehouse — not heavily concentrated in one sector like office, which is under pressure. Luna: And that's a real distinction from some other REITs. Office REITs are getting hammered. Realty Income's focus on single-tenant, net-leased properties means the tenant pays insurance, taxes, and maintenance. So the landlord's expenses are lower. Lucas: Exactly. And here's a number that matters: Realty Income's payout ratio, using adjusted funds from operations, is around eighty percent. That's a bit high, but it's been consistent for years. They've shown they can manage that level through cycles. Luna: So when you compare the five point two percent yield plus two and a half percent annual growth, versus a thirty-year bond at five point zero five percent with no growth, the REIT looks attractive over a ten-year horizon. But over one year, the bond might win if yields drop and you get price appreciation. Lucas: It depends on what you're trying to do. If you need a fixed income check for the next thirty years and you're worried about principal volatility, the bond might be better. But if you're building a portfolio of income streams that grow over time to outpace inflation, Realty Income is a classic choice. Luna: It reminds me of what we've discussed about dividend growth stocks versus high yield. The compounding effect is powerful. Lucas: And that's really the lesson here. Don't just look at the starting yield. Look at the trajectory. Realty Income has a long track record of raising dividends, and that's worth a premium over a static bond yield. Luna: You know, this kind of conversation is exactly why people keep coming back to this show. We try to dig past the headline numbers. Lucas: And a quick honest thing — that's only possible because a handful of listeners chip in monthly through buy me a coffee dot com slash fexingo. That literally funds making this many of these episodes ad-free. Luna: Yeah, we don't run ads. We don't have sponsors. It's just listener support. And we're grateful for everyone who contributes. Lucas: If our money conversations have helped you think about a decision differently, that's the link. Buy me a coffee dot com slash fexingo. No pressure, just a fact. Luna: Alright, back to Realty Income. One thing I want to ask: how does the dividend growth rate compare to inflation? Lucas: Good question. Over the last decade, Realty Income's dividend CAGR of two and a half percent has roughly matched CPI. So it's not outpacing inflation by a wide margin, but it's keeping pace. That's more than a bond does. Luna: And if inflation picks up again, those rent escalators could accelerate. Many of their leases have fixed annual increases, but some are tied to CPI. Lucas: Right. About a third of their leases have cpi linked escalators. That gives them a built-in hedge. Luna: So if I'm an income investor with a ten-year time horizon, which looks better: a bond ladder with 5% yields or a position in O? Lucas: I'd say it's not an either-or. You can do both. But if you tilt toward O, you're accepting higher volatility in exchange for income growth. Over ten years, the compounding of those dividend increases should more than compensate for the extra risk. Luna: What about the risk of a dividend cut? Realty Income has never cut its dividend in its history as a public company — since 1994. Lucas: That's right. Not during the dot-com bust, not during the financial crisis, not during COVID. That track record is why they're considered a dividend aristocrat among REITs. Luna: So the bond might feel safer, but the stock has a proven record of maintaining and growing its payout. Lucas: Exactly. And that's the bet: that the future will look like the past. No one can guarantee it, but the evidence is strong. Luna: Alright, one last question. How does Realty Income's yield compare to something like the Vanguard High Dividend Yield ETF, VYM? Lucas: VYM is around two point nine percent right now. So O's yield is significantly higher. But VYM gives you diversification across hundreds of stocks. O is a single company. So you're taking concentrated risk for that extra yield. Luna: Makes sense. For someone who wants to own a REIT and is comfortable with that concentration, O is a solid choice. Lucas: And in a world where the thirty-year Treasury is yielding five point zero five percent, it's worth asking: do you want a static income stream or one that can grow? That's the real question. Luna: Good way to frame it. Thanks, Lucas. Lucas: Thanks, Luna. That's all for this episode of Dividend Investing with Fexingo.