10-Year Treasury Yields Are Back Over 5% After the Fed Raised Rates. 3 Reasons Why This S&P 500 Dividend Stock Is a Better Buy for Long-Term Passive Income Investors

Key Points

• Realty Income's diversified portfolio of over 15,500 properties across 1,800 clients gives it steady, recurring rental income.
• The REIT has raised its dividend 136 times since 1994, paying a monthly income that grows rather than staying fixed like a bond coupon.
• New joint ventures should bring in outside capital and expand Realty Income's growth opportunities.
• 10 stocks we like better than Realty Income ›

Bond yields have surged this year, with the 10-year Treasury pushing past the 5% mark following the latest rate hike from the Federal Reserve. But for investors seeking long-term passive income, Realty Income (NYSE: O), an S&P 500 dividend stock, offers something Treasuries can't match: the potential for growing income over time.

Here are three reasons why it deserves a closer look.

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Realty Income is designed for recurring cash flow

Realty Income's business model is built around recurring cash flow. In particular, the company owns thousands of commercial properties, generally leased under long-term leases. It has interests in over 15,500 properties leased to 1,800 clients across 92 industries.

The portfolio is diversified across tenants, industries, and geographies, so the company isn't overly reliant on one customer. That diversification matters, especially when the economy becomes uncertain. This means a tenant can have a difficult quarter without having a huge effect on Realty Income's cash flow.

In the second quarter, the company generated positive rent recapture on released properties, proving its ability to replace expiring leases at rents at least as high as the previous contracts. Meanwhile, same-store rental revenue continued to grow.

That's exactly the kind of consistency long-term income investors are looking for.

But recurring rent isn't enough. A dividend stock must also have a management team capable of delivering consistent dividend growth.

The dividend story is about consistency, not just yield

Realty Income calls itself "The Monthly Dividend Company" because it pays shareholders monthly rather than quarterly. More importantly, it has spent decades increasing that payout.

In September, the company announced its 136th increase in common stock dividends since its NYSE listing in 1994. It has also declared hundreds of consecutive monthly dividends and increased its dividend for more than three decades.

A Treasury bond can offer a predictable and consistent coupon, but it doesn't automatically grow with the economy. Realty Income, in contrast, has the potential to increase its rental income and periodically raise its dividend.

For investors building passive income, that track record of consistent dividend growth makes the stock compelling. In the second quarter, adjusted funds from operations (AFFO) per share increased year over year, and management raised its full-year AFFO guidance. It also raised its expected investment volume for 2026, which suggests management sees more opportunities to expand its asset base and cash flow.

That doesn't mean dividend growth will be explosive. In fact, Realty Income's dividend increases have been pretty modest. But for passive investors, there can be value in owning an asset that delivers dependable income growth rather than massive payouts that may not be sustainable.

Plus, Realty Income is seeking new ways to grow its income.

Realty Income is becoming more than a traditional retail REIT

For years, Realty Income has been a real estate investment trust (REIT) that owned properties occupied by retailers, restaurants, and other businesses. Now, the company is building something broader.

Recently, it announced a joint venture with investment firm KKR to expand its private capital platform. With higher rates making it harder to access cheap capital, Realty Income's platform brings in outside capital rather than relying on its own balance sheet. That should give it more flexibility to keep investing even when financing is tight.

Another notable development was its data center joint venture, which has more than $6 billion of initial seed assets. That's a meaningful shift, but the playbook is similar: Find high-quality assets that generate long-term cash flows. More importantly, the shift gives the company exposure to the AI boom and the huge growth that comes with it.

As a result, this expansion could go a long way toward helping Realty Income continue raising its dividends.

Is Realty Income a buy for income investors?

Treasury yields over 5% offer tempting, low-risk income. When compared with a quality dividend stock, that's a real trade-off worth weighing. But a bond's coupon is fixed once purchased, while Realty Income's monthly cash flow, decades-long streak of dividend increases, and growing private capital platform give it multiple paths to keep raising that payout. That's something no Treasury can promise.

For investors building long-term passive income, that combination could make Realty Income the stronger buy over simply locking in today's yield for the next 10 years.

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Rick Orford has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends KKR and Realty Income. The Motley Fool has a disclosure policy.