3 Reasons Realty Income Is The Ultimate High-Yield SWAN Stock

Apr. 01, 2019 9:28 AM ETRealty Income Corporation (O)69 Comments


  • I'm a huge proponent of buying top-quality blue-chip and sleep well an night or SWAN dividend stocks at good to great prices.
  • When it comes to high-yield SWANs, Realty Income is one of the best stocks you can own.
  • That's because of one of the safest dividends on Wall Street, strong competitive advantages supporting its low-risk, recession-resistant business model, and a quality management team you can trust.
  • However, today the REIT is in a bubble and about 22% overvalued. No matter how wonderful a company, grossly overpaying (and ahead of a potential recession in 2020) is a poor use of investing capital.
  • No dividend stock, even a SWAN like Realty, is a true bond alternative. If you'll need money to pay bills during a recession, you actually need to own cash/bonds, which are likely to appreciate when stocks crash.

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Over 23 years of investing, I've tried pretty much every strategy to generate market-beating returns. But ultimately I've concluded that Warren Buffett was right and that "fat pitch" investing, meaning buying quality income producing assets at good to great prices for the long-term is the easiest and most effective method for achieving my financial goals.

And since most of my readers are in the same boat as me (and aim to live off safe and exponentially rising dividends in retirement), I've spent the last few weeks building out a proprietary quality scoring system to apply to all my watchlist holdings.

This lets me systematically determine what companies can be trusted with your money, which are higher-risk and only worth buying at deep discounts, and which are true SWAN (sleep well at night) stocks you can buy with confidence at fair value or better.

My 11 point Sensei Quality Score is based on three important criteria that historically is what leads to great investing results

  • dividend safety (5 points, based on payout ratio, balance sheet, and cash flow stability)
  • business model (competitive advantages, moat, and ability to generate returns on investment above cost of capital)
  • management quality (capital allocation track record, including dividend friendliness)

I then apply these scores to determine what's a good valuation to buy a dividend company

  • 9+ = SWAN (fair value or better)
  • 8+ = blue-chip (fair value or better)
  • 7 = "dirty value" (deep discounts and high margins of safety only)
  • 6 or below = high risk, avoid

I'd like to walk you through my assessment of Realty Income (NYSE:O), the beloved monthly paying REIT, to show you the 3 reasons I consider this to be the ultimate SWAN stock. What's more, at the right price, Realty is a must own position in nearly any

This article was written by

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Maximize your income with the world’s highest-quality dividend investments

Adam Galas is a co-founder of Wide Moat Research ("WMR"), a subscription-based publisher of financial information, serving over 5,000 investors around the world. WMR has a team of experienced multi-disciplined analysts covering all dividend categories, including REITs, MLPs, BDCs, and traditional C-Corps.

The WMR brands include: (1) The Intelligent REIT Investor (newsletter), (2) The Intelligent Dividend Investor (newsletter), (3) iREIT on Alpha (Seeking Alpha), and (4) The Dividend Kings (Seeking Alpha).

I'm a proud Army veteran and have seven years of experience as an analyst/investment writer for Dividend Kings, iREIT, The Intelligent Dividend Investor, The Motley Fool, Simply Safe Dividends, Seeking Alpha, and the Adam Mesh Trading Group. I'm proud to be one of the founders of The Dividend Kings, joining forces with Brad Thomas, Chuck Carnevale, and other leading income writers to offer the best premium service on Seeking Alpha's Market Place.

My goal is to help all people learn how to harness the awesome power of dividend growth investing to achieve their financial dreams and enrich their lives.

With 24 years of investing experience, I've learned what works and more importantly, what doesn't, when it comes to building long-term wealth and safe and dependable income streams in all economic and market conditions.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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