Got $1,000? This High-Yield Dividend Stock Is Worth Considering

Key Points

Dividend stocks are not risk-free, but some offer better characteristics than others.

Often, a high dividend yield can suggest potential weakness with a company's dividend.

But there are high-yielding dividend stocks that can consistently pay and raise their dividends.

• 10 stocks we like better than Realty Income ›

In such uncertain times, a high-yielding dividend stock sounds pretty good, especially if it can continue to pay its dividend through the uncertainty.

However, investors should keep in mind that many companies with high dividend yields often have them for a reason, and that reason isn't always a good one. Many dividend yields often rise as a company struggles and its stock price declines. High yields can also indicate that a dividend isn't sustainable and may be cut in the near term.

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That's why investors need to carefully assess whether a company has strong enough earnings and is generating enough free cash flow to maintain its dividend. Serious dividend investors are also looking for a company to grow its dividend and yield over time, so it can compete with other financial instruments in different environments.

When done right, dividend investing can be a less stressful and more reliable way to generate passive income. Got $1,000? This high-yield dividend stock is worth considering.

The monthly dividend company

Having paid and increased its annual dividend for 31 years, Realty Income (NYSE: O) is now part of an exclusive group of companies with this strong a track record. As a real estate investment trust (REIT), Realty Income must distribute 90% of its taxable income, among other requirements, to maintain its REIT status, which allows it to avoid paying federal taxes.

Realty Income is a triple net lease operator. That means it leases properties to customers, who are then responsible for paying property taxes and insurance, and for handling maintenance. Tenants benefit by negotiating longer-term leases and gaining the ability to unlock real estate capital while keeping control over their business sites.

Realty Income focuses on leasing properties to service-oriented, low-price retail clients that tend to be more resilient through an entire economic cycle. For instance, grocery stores and convenience stores are its largest customer segments, while companies such as 7-Eleven, Dollar General, and Lifetime Fitness are among its largest clients.

As for the dividend, Realty Income yields over 5.2% on a trailing-12-month basis, which is superb. Meanwhile, over 31 years, Realty Income's dividend has generated a 4.2% annual dividend growth rate. The stock itself is more defensive. During market drawdowns, the stock has only had an average sell-off of 2.6%, while the broader benchmark S&P 500 Index has averaged a drawdown of 22.6%.

Finally, the company appears more than capable of continuing to pay and raise its dividend. In 2025, Realty Income's generated adjusted funds from operations (AFFO) per share, essentially a measure of free cash flow for a REIT, of $4.28. The company paid total dividends per share of $3.24, meaning dividends consumed about 76% of AFFO.

Should you buy stock in Realty Income right now?

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

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.