REIT Investing for Retirement Income | Is Realty Income Corporation Safe?

Hello Diamond Nest Egg members, Super Savers, and Course Fans. I hope you're healthy and well. We're continuing our 2026 mini-series on how to build a safe and predictable income stream in 2026. In part one of our income mini-series, we talked about the seven safe and predictable building blocks for income that should, in our mind, be at the core of every retirement portfolio as they allow you to lock in a guaranteed income stream for the long run or even for life. For example, with a single premium immediate annuity or SPIA. In part two of our income series, we introduced our three secret investments for higher income where we explained how collateralized loan obligations, CLOs, dividend shares, and covered call strategies with the likes of JAAA, SHD, and JEPI might allow you to create some extra income from the part of your portfolio that you don't want to commit for that long and or with which you don't mind taking on a bit of additional risk and complexity. And in part three of our income series, we talked about high yield bond funds like USHY for the more advanced and or adventurous bond investors in our community who are looking for higher returns beyond what treasuries can pay and are willing to take on some additional risk in doing so. I've linked all three of these videos in our income series below for your convenience. In today's video, we're going to kick off our discussion on some more out-of-the-box ideas, alternative investments that can diversify your portfolio with different types of exposure. We'll start with real estate investment trusts or REITs specifically with the Realty Income Corporation REIT, ticker O, a REIT that quite a few of our Diamond Nest Egg regulars have asked about in the past. It is one of the largest diversified income REITs on the market. REITs such as O might be for you if you're looking for instruments that generate a higher income. In the case of O, a 5.54% cash distribution yield while at the same time providing you with some inflation protection, potentially lower taxes, liquidity, and portfolio risk diversification. So here are the three topics that we'll be covering today. One, who should consider real estate investment trusts, REITs, to diversify their portfolio? Two, who might want to stay away from REITs? And three, what is the track record of the Realty Income Corporation REIT, ticker O? Let's dive in now folks. Who should consider real estate investment trusts, REITs, to diversify their portfolio? Many classic portfolios are built around equities from public companies and investment grade bonds and there's nothing wrong with that. These are easily accessible for retail investors and a combination of such instruments can get you to a diversified risk return profile as we've often discussed on this channel. That said, as you become more knowledgeable and comfortable with investing and as your portfolio grows, you may want to start exploring additional opportunities that give you exposure to new types of risk. Such investments are often called alternative investments in the industry and they can not only add to your income stream, often at attractive rates, they may also diversify and potentially reduce your overall portfolio risk. Real estate is probably the first category that comes to mind here for many in our community and that's why we're kicking off our overview of alternative investments with real estate investment trusts or REITs today. Energy infrastructure is another alternative investment area that has piqued some community interest recently and for our VIP members, please note that we will be covering energy infrastructure investment vehicles once we wrap up our mini series on corporate bond investing because there are some attractive opportunities in that space as well and remember there's still a few short hours left to join our brand new VIP member community before prices go up on January 15th when we officially launch. You can go to our website and click on this yellow private VIP member community button to grab your $100 early bird discount or check out this video here to get an insider look into the content and conversations that are happening there every day and whether it may be right for you. For today though, let's go back to REITs and talk about who should consider them in the first place. In our mind, REITs could be most interesting for investors who fall in one or more of these five categories. One, your income focus and want a good distribution yield, a good cash income from your investments like the 5.54 percent that I mentioned before that the Realty Income Corporation REIT, ticker O, was showing at the close of last week. Of course, we all appreciate some additional capital gains as well if we can get them but that's not the main focus of REITs. There are alternative investments out there that are more growth rather than income focus but that would be the topic for another entire video series. Two, you want this income stream to have some protection against inflation. REITs can deliver this because their underlying assets, real estate properties, are natural inflation hedge and the rental payments they receive will generally adjust to higher price levels as well over time. Three, you're a tax aware investor. Now, the dividends on REITs are generally taxable as ordinary income which isn't that great but they offer one direct and one indirect tax advantage that can be quite attractive. We'll discuss these later in the video. And just to whet the appetite of our tax conscious members a bit more, energy infrastructure investments in the form of a can be even more attractive on the tax front. Let's not run before we can walk and stick to REITs for today as these are just an easier starting point for alternative investments. Four, you want your alternative investment to be liquid which listed REITs are by definition. Now, the actual liquidity in the market when you want to buy or sell may depend on the size of the but O as one of the largest REITs on the market has a good track record here. And five, you want to diversify your overall portfolio risk profile especially if your starting point is a more classic portfolio centered around public equities and investment grade bonds. REITs such as O can help here because real estate investments follow their own cycle and may for example compensate for In any case, if you check off some or even all of these five boxes here, REITs may be worth exploring further. But before you go and click that buy button, let's quickly go through the second part of today's discussion. Who might want to stay away from REITs? REITs may not be for you if you're very conservative and prioritize predictability and stability over most other aspects. REIT share prices are sensitive to both interest rates and the development of the underlying portfolio and may fluctuate quite a bit over time. Also, REITs cannot guarantee future payouts. If you're not comfortable with that, CDs, treasuries, annuities and other similarly safe investments with guaranteed rates might be better options for letting you sleep well at night. You're still focused mainly on growth in your portfolio. REITs are designed for income and risk diversification but may not deliver much or even any capital gains. So, if you're still working on your core growth investments, you may not want to rush into REITs just yet. You don't like complexity. Real estate can be a world of its own which helps with diversification, mind you, but it doesn't make it easier for folks who haven't been exposed to property as investors before. Plus, the REIT universe itself is not straightforward. There are equity REITs, mortgage REITs and hybrid REITs as well as sector-specific REITs. This is all to say that even though REITs as a category may be a good starting point for understanding alternative investments, even something as simple as selecting a REIT that's right for you and whose management you trust may require a certain degree of research and knowledge before you will feel comfortable with owning them. For our long-standing members and for all our brand new VIP members who have joined recently, please refer back to these member videos from last year on some of the most popular REITs and REIT index funds and ETFs out there. Now, let's move on to what we think is the most interesting part of today's video. What is the track record of the Realty Income Corporation REIT? Ticker O. REITs are essentially stock companies that own, manage and or finance real estate. By law, REITs must have at least 75% of their assets in real estate, derive at least 75% of their income from real estate specific sources such as rents or gains and distribute at least 90% of their annual taxable income to shareholders. REITs can own a wide range of properties. Some are very specialized, some well diversified. Our example for this video, the Realty Income Corporation REIT, ticker O, is one of the largest REITs and invests mainly in a diversified portfolio of single unit freestanding commercial properties. Think grocery stores, fitness chains and car dealerships. O has a market capitalization of $54 billion and is popular with many retail investors for both its stable track record and its monthly income payments. O is an equity REIT, meaning it owns and manages properties as opposed to just financing them as a mortgage REIT would. This means that its main risks are really property prices and and the reason why we classify O as an alternative investment here that may diversify and potentially reduce the overall risk in your portfolio. REITs are also exposed to changes in interest rates, mainly for their share prices, but also for the financing and refinancing of their properties. REIT dividends are not guaranteed, but the companies try hard to build and maintain a stable track record. In the case of O, its dividend per share has grown steadily over the past 10 years, from $2.40 in 2016 to $3.22 currently, which is presumably a key reason for its popularity. That said, the share price was less stable and experienced a few ups and downs during the same period, going as low as $47 and as high as $79 before closing at $58 at the end of last week. O is very liquid and trades on average 6 million shares a day. As a retail investor, you will generally have to pay full ordinary income taxes on the dividends you receive from a REIT if you hold it in a taxable brokerage account. As I mentioned before though, you may still benefit from two specific tax advantages. Some investors may be able to deduct up to 20% of their REIT dividends from their taxable income under the Qualified Business Income Deduction or QBI that was made permanent by the OBB last year. This can effectively reduce your federal tax rate by 20%, but some conditions apply, including income limits. Remember that we're not tax advisors, so if you have more detailed taxation questions, do consult with your trusted tax advisor about your personal situation. In addition, and more indirectly relevant for a retail investor, REITs are passed through entities, which means that they are not taxed at the corporate level, which avoids double taxation and may potentially reduce the overall burden on the income generated by the portfolio. O's distribution yield stood at 5.54% at the close of last week. The distribution yield is essentially the percentage of cash income on an investment, based on its track record and recent share price. We use the trailing dividend yield for O, meaning the actual dividends paid over the past year. Always remember that O's dividends are not guaranteed, meaning this distribution yield is also not guaranteed. O's five-year trailing total return is 5.55% at the time of this taping. Keep in mind, the distribution yield or cash income that we discussed before is only one part of what an investor can earn from an investment. Capital gains or losses from rising or falling share prices are the second component. In other words, this five-year trailing total return of 5.55% shows you how much an annualized total return you would have earned from both distributions and capital gains or losses had you invested in O five years ago. So, to recap, REITs like O are often the first alternative investments that retail investors buy when they start diversifying their portfolio, and for five good reasons. REITs may bring you a good distribution yield with some protection against inflation and potentially offer you a direct benefit from their eligibility for the 20% QBI deduction, as well as the more indirect benefit from the avoidance of double taxation at the corporate level. REITs like O are also liquid and may help to diversify your overall portfolio risk profile. On the flip side, REITs like O may be something to stay away from if you're a very conservative investor and not comfortable with the fact that REIT share prices may fluctuate quite a bit over time and that REIT payouts are not guaranteed. REITs are also not designed for an investor who is still focused on portfolio growth, nor are they meant for an investor who does not like complexity. REITs will expose you to the ups and downs in the real estate investment world. Even selecting a REIT that's right for you may not always be that straightforward given all the options that exist on the market. So, drop a comment below. Do you own any REITs in your portfolio? And if so, which ones? Curious minds want to know. Now, if today's first introduction into REITs as an alternative investment and the overview of O was interesting for you, and you want to learn more about safe ways to generate higher income this year as short-term rates move lower, I invite you to come join our brand new VIP member community at the lowest price it will ever be. There's still a few short hours to save before prices go up on our launch date. Remember, if you already understand the fundamentals of bond investing and are reasonably comfortable managing your portfolio yourself, or if you're currently going through our bond courses, our Diamondnestic VIP member community is the ideal place for you if, one, you're already in retirement and want to have a forum for an extra pair of eyes for critical questions. Two, you're not yet in retirement but are actively thinking about it for yourself or a loved one and want to get ready to take the decisions that lie ahead. Three, you have questions about how a product works and what the benefits and risks may be. Four, you follow the markets and want to be the first to know about safe and or higher yielding investments. Five, you want to understand new offerings and trends and decide whether they might be something for your portfolio. 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