Volatility has returned to the stock market this year. the S&P500 briefly entered correction territory, falling 10% from its most recent high. During this time, the Nasdaq Compound plunged into a bear market – falling 20% from its peak. Although they recouped some of their losses — the S&P 500 and Nasdaq are now down 8% and 15%, respectively — that volatility has unnerved investors.
Although investors cannot completely eliminate volatility from their portfolio, they can take steps to lessen its impact by holding stocks that have historically been less volatile than the market. A stock traditionally less volatile than the S&P 500 is Real estate income (O 1.75% ). Here’s what makes this real estate investment trust (REIT) a great way to take some of the market volatility out of your portfolio.
One of the least volatile stocks
Realty Income has one of the lowest stock price volatilities in the S&P 500. One of the main indicators of volatility is beta. It measures the volatility of a stock relative to the market, which has a beta of one. Stocks with a beta greater than one are more volatile than the market, while those below one are generally less volatile.
Real estate income has a beta of 0.5, the second lowest beta among REITs in the S&P 500. A low beta means property income is much less volatile than the S&P 500. As such, we can expect it not to fall as much as the broader market during a massive sale. Historically, the downside volatility of the company’s total shareholder return is just 3.8%, the sixth lowest among companies listed in the S&P 500.
However, less volatility isn’t the only thing Realty Income brings to an investor’s portfolio. The REIT also has a long history of producing strong total returns. It has delivered a compound average annual total shareholder return of 15.5% since its initial public offering (IPO) in 1994. That’s an elite return for a stock with such low share price volatility. . Realty Income’s return per unit of market risk is in the 95th percentile of S&P 500 companies. In other words, the company has produced higher returns with less volatility than most stocks in the market over the years. years.
Realty Income’s Secret Sauce
The determining factor in Realty Income’s ability to deliver strong returns with less volatility is its ultra-low risk business model. The foundation is the portfolio of the REIT. It has a vast and diversified portfolio commercial real estate. It focuses on owning single-tenant, net-leasehold real estate. This lease structure makes the tenant responsible for building maintenance, insurance and property taxes, allowing Realty Income to generate stable rental income.
Additionally, the REIT is focused on owning operationally critical properties leased to high quality tenants in areas resilient to economic downturns and insulated from e-commerce pressures. These factors add to the sustainability of the REIT’s rental income.
Realty Income complements its high quality real estate portfolio with a leading financial profile. The company has one of the highest credit ratings in the REIT industry. In addition, it has a relatively conservative character dividend distribution rate for a REIT. This gives him plenty of cushion to get through tough times and the financial flexibility to steadily expand his portfolio by acquiring more high-quality real estate.
For this reason, the REIT has steadily increased its earnings per share, which has enabled it to consistently increase its dividend. Realty Income recently announced its 115th dividend increase since going public. He has now increased his payout in each of the past 98 consecutive quarters. Overall, the REIT increased its monthly dividend at an annual rate of 4.4%. This steady and growing revenue stream has also played a huge role in reducing the stock’s volatility. When stocks fall, it makes Realty Income more attractive to income-seeking investors who rush in and buy stocks at a higher price. dividend yield.
A great way to reduce the sting of volatility
Realty Income’s combination of a rock-solid portfolio and financial profile has allowed it to steadily increase its earnings and dividends over the years. As a result, it produced strong returns with less volatility than most other stocks. For this reason, it is an ideal addition to a portfolio full of higher volatility stocks. This can help mitigate the impact of volatility without reducing overall returns.
This article represents the opinion of the author, who may disagree with the “official” recommendation position of a high-end advice service Motley Fool. We are heterogeneous! Challenging an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and wealthier.