I’m buying 505 shares of this REIT for £100 in monthly passive income

One of the best passive income stocks in my portfolio is a Real Estate Investment Trust. Over time, I’m looking for £100 per month in passive income.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

Young Black man sat in front of laptop while wearing headphones

Image source: Getty Images

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

One of the largest holdings in my portfolio is a real estate investment trust (REIT). I that it’s an extremely well-run business that can provide solid passive income for me going forward.

I’m looking to generate £100 in monthly passive income, by buying 505 shares of Realty Income (NYSE:O). I think that the business has been strong for some time and its most recent earnings report further emphasised this.

Dividend payments are never guaranteed. But I’m confident that Realty Income is committed to its dividend.

Track record

Realty Income makes its money by leasing retail properties. As a REIT, it distributes 90% of the rental income that it generates to its shareholders via dividends.

The company has a very strong track record. Over the last 25 years, it has increased its dividends every three months without exception.

The past is all well and good, but what about the future? Does the rise of e-commerce threaten Realty Income’s business model with its focus on physical retail?

I don’t think that it does. According to the company’s most recent investor presentation, around 92% of its rental income is resistant to pressure from e-commerce.

As a result, I think that the business is in a good position to continue its impressive record. Eventually, I’m looking to generate £100 in monthly passive income by buying enough Realty Income shares.

Passive income

At its current price, its shares come with a 5% dividend yield. But how many shares do I need to receive £100 in monthly dividends?

Because it’s a US company, the answer is complicated by a couple of things. The first is the exchange rate and the second is tax.

At the moment, the business pays a $0.25 dividend per share. Converted into GBP at today’s rates, that equates to 22p, though there’s obviously scope for that to fluctuate in future.

It means I’ll need at least 455 Realty Income shares to generate £100 in monthly income. But there’s a further issue to consider.

As a UK investor, I pay a 10% withholding tax on dividends paid by US companies. That means 455 shares would actually only generate £90 in dividends per month, as I’m set to lose £10 to tax.

The actual number of shares of Realty Income I’d need to generate £100 in monthly dividend income would be 505. At today’s prices, that would set me back around £28,133.

I don’t have that to invest right now, but I don’t have to buy all of the shares in one go. By buying some of them today and reinvesting the dividends each month, I can work my way up to owning 505 shares over time.

A stock to buy

Realty Income is one of the biggest holdings in my investment portfolio. I don’t own anywhere near 505 shares, but my intention is to keep buying shares to increase my stake in the company.

Along the way, I need to note the stock-specific risks and one is rising interest rates. Realty Income has significant debt that might become risky as capital becomes more expensive.

But with no significant debt due to mature soon, I think that the business is in good shape. That’s why I’m planning to buy it in November to increase my monthly passive income.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Stephen Wright has positions in Realty Income. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Young mixed-race couple sat on the beach looking out over the sea
Investing Articles

I’d put £20K in an ISA now to target a £1,900 monthly second income in future!

Christopher Ruane shares why he thinks a long-term approach to investing and careful selection of shares could help him build…

Read more »

Mature couple at the beach
Investing Articles

6 stocks that Fools have been buying!

Our Foolish freelancers are putting their money where their mouths are and buying these stocks in recent weeks.

Read more »

Black woman using loudspeaker to be heard
Investing Articles

I was right about the Barclays share price! Here’s what I think happens next

Jon Smith explains why he still feels the Barclays share price is undervalued and flags up why updates on its…

Read more »

Investing Articles

Where I’d start investing £8,000 in April 2024

Writer Ben McPoland highlights two areas of the stock market that he would target if he were to start investing…

Read more »

View of Tower Bridge in Autumn
Investing Articles

Ahead of the ISA deadline, here are 3 FTSE 100 stocks I’d consider

Jon Smith notes down some FTSE 100 stocks in sectors ranging from property to retail that he thinks could offer…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

Why I think Rolls-Royce shares will pay a dividend in 2024

Stephen Wright thinks Rolls-Royce shares are about to pay a dividend again. But he isn’t convinced this is something investors…

Read more »

Investing Articles

1 of the best UK shares to consider buying in April

Higher gold prices and a falling share price have put this FTSE 250 stock on Stephen Wright's list of UK…

Read more »

Person holding magnifying glass over important document, reading the small print
Investing Articles

The market is wrong about this FTSE 250 stock. I’m buying it in April

Stephen Wright thinks investors should look past a 49% decline in earnings per share and consider investing in a FTSE…

Read more »