Each week you'll learn how to be a better dividend investor and follow the journey of a welder with a passion for passive income to $1,000,000 and beyond.
Share
The Snowball That Grows Even When It's Melting!
Published 2 months ago • 4 min read
This Valentine's Day was a very special one!
My wife, Jena, and I don't exchange gifts for Hallmark holidays because we'd rather spend money on random nights out together.
But this year, I bought something special: more passive income!
On Valentine's Day, we received a $56.76 dividend check from Realty Income (O), "The Monthly Dividend Company" and in a historic first, with that dividend check, we bought a full share of Realty Income for $55.19.
As of this writing that's $3.17 of additional passive income generated solely from passive income.
SimplySafeDividends.com
SimpleSafeDividends.com
Passive income creates more passive income, which generates even more passive income. They call this the dividend snowball, even if it's melting.
We hold Realty Income in a Self-Directed IRA (SDIRA) because REITs are pass-through entities legally required to distribute at least 90% of their taxable income to shareholders.
From Investopedia: This means most dividends investors receive are taxed as ordinary income at their marginal tax rates rather than lower qualified dividend rates.
But it hasn't been all roses. Following the actual path of a rolling and growing snowball, the share price has sloped downward, and we're currently -7.9%, not including dividends received.
SimplySafeDividends.com
We hold Realty Income because it offers stable and growing dividend income as a commercial real estate landlord.
Most of its rent comes from well-known retail tenants, but the top two—Dollar General (DG) and Walgreens Boots Alliance (WBA)—are uncertain. Together, they account for 6.6% of the total annual rent.
Realty Income Investor Presentation
REITs in general have struggled because interest is their lifeblood, so higher interest rates translate into lower future returns.
"Risk-free" fixed income from bonds also becomes more attractive and sucks money out of the world of REITs, creating lower share prices, which push the dividend yields up until the risk of owning REITs is attractive and buyers stabilize the falling share prices.
While bonds may be more attractive right now, their passive income doesn't grow and keep up with inflation, which proves that every investment has risks. Bonds suffer from "Inflation Risk" because an increase in inflation reduces their purchasing power.
REITs like Realty Income have rent escalators built into their tenant contracts to help rental income keep pace with inflation.
SimplySafeDividends.com
Realty Income is one of the largest REITs, with a market cap of almost $48 billion. This makes growing more challenging because of the "law of large numbers."
We've seen them start to explore new growth through international real estate, data centers, and an institutional private capital fund, which some YouTuber made an AWESOME VIDEO about!
Many people look at investments like Realty Income and say "It's not beating the market." Indeed it hasn't lately, but if you're in wealth preservation mode or want stable passive income that keeps pace with inflation, then "beating the market" isn't your reason for owning it.
If you had bought a share of Realty Income exactly twenty years ago for $24.24, you would have received a total return of 529% and $43.84 in dividend income—almost double your initial investment!
DividendChannel.com
If you had bought the S&P500, you'd have had an almost 100% greater total return, but according to the chart, Realty Income was the better-performing asset until the tech boom and the end of zero interest rates.
Peter Lynch's quote: "Know what you own and know why you own it" comes to mind.
Peter Lynch quote
We own Realty Income (O) for its stable and growing passive income. We intend to hold "forever" and also own the entire US stock market haystack through the Vanguard Total Stock Market ETF (VTI).
Someday interest rates will drop, REITs will become more attractive than bonds, and Realty Income's share price will recover.
But we don't know when that will be, and I'm content being paid to wait because I'm not buying Realty Income to trade but to generate slowly growing passive income.
Long-term investing isn't about "beating the market" but meeting your unique financial goals while sleeping well at night.
I'd love for you to reply and share your thoughts about REITs and Realty Income. I'll respond to every response!
😁THANK YOU to all who responded to the last newsletter!!
Tracy Ryniec gives her thoughts on 3 Lesson's From Buffett's Apple Stock Sales. This was a fun listen and goes to show that nothing is absolute, no matter who is saying it!
🎦If you missed it, sharing 5 (but really four) quality dividend growth stocks for beginners!
Click the image above, sign up for a 7-day free trial, and get $30 off!
*This is an affiliate offer, and I will receive a small commission at no additional cost when you buy a premium annual subscription after clicking the image above.
Special offer: $30 off Premium for the first year. At the end of the free trial (or immediately if you are no longer eligible for a free trial), $269 is charged automatically for the first year of your annual subscription. Auto-renews at the then current annual list price.
Each week you'll learn how to be a better dividend investor and follow the journey of a welder with a passion for passive income to $1,000,000 and beyond.
One of my great God-given talents is comparing investing to almost anything. So, I was cleaning my cat's litter-box, and it hit me... Investment portfolios are a lot like a cat's digestive system! My cat Louie eats food, gets nutrients from it, and removes what his body doesn't need. That's exactly what we should do with our investments! We "eat" stocks by buying them, "digest" them by holding them and maybe getting dividends, and sometimes, we need to "expel" the ones that aren't helping us...
During the last major prolonged stock market crash in late 2008—early 2009, I had a conversation with my freaked-out and pissed-off mom. The continual drops freaked her out, and she was thinking about pulling her money out of the market to save what little was left. Even though I wasn't an active investor then, I questioned this and said, "But if you sell out now, you'll guarantee losses. How will you know when to get back in?" She told me she couldn't take watching her money evaporate every...
You know what they say: opinions are like elbows; everyone's got them And after the week we've had, you're probably drowning in opinions, predictions, and free advice Facts are cool, though, so here are a few factual things: There are two types of people: Those who DON'T KNOW they can't predict the future and those who KNOW they can't From the WSJ: "...45% of U.S. imports are inputs that go into our own manufacturing production. An import tax on these inputs hurts domestic manufacturing." You...
