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

Young Black man sat in front of laptop while wearing headphones
Young Black man sat in front of laptop while wearing headphones

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.

The post I’m buying 505 shares of this REIT for £100 in monthly passive income appeared first on The Motley Fool UK.

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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.

Motley Fool UK 2022