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Tuesday, July 13, 2010
Most Americans put their savings in an ordinary bank account – and collect a tiny 1% interest a year. Today I'd like to tell you about a unique income opportunity that's almost as safe as a bank account, but pays 5.5%.
If you invest your money in this idea, you'll receive an income check every single month from this investment. And get this: Unlike interest from a bank account or the coupon from a bond, the payments you'll receive from this income opportunity rise every year... often several times.
For example, in 2008 the monthly payment increased three times. And in 2009, it increased once. So far in 2010, it's already increased again.
Since 1994, the monthly payment has increased 58 times... and grown 91.5%.
I call this opportunity "The Monthly Dividend Trust." It performs better than any bank account, CD, or Treasury bond... yet its consistent results make it one of the safest places out there.
The Monthly Dividend Trust is a company that engages in a niche business called the "sale-leaseback." To explain this business, it's best to give you an example...
Imagine you own a chain of 100 convenience stores. You'd like to expand your chain... and make improvements to your existing stores... but you don't have any spare cash. You could borrow the money, but the banks are being cautious because of the bad economy, and you're facing interest rates above 10%. It's not appealing. So what do you do?
You sell your properties to the Monthly Dividend Trust for $100 million. Then you sign a 20-year rental contract with the Monthly Dividend Trust. This way, you continue using your properties as before, plus you have millions of dollars in the bank to reinvest in your business. The Monthly Dividend Trust collects rent and manages your property portfolio for you.
The Monthly Dividend Trust has been in business since 1969 and is the largest sale-leaseback company in America. It currently owns 2,339 properties in 49 states. These properties have a 97% occupancy rate... and generate $300 million a year in rental income. The Monthly Dividend Trust pays its dividend checks out of this rental income.
So what makes the Monthly Dividend Trust so safe, especially given the current state of the real estate market?
For one thing, the Monthly Dividend Trust has extremely conservative managers. Paying income to shareholders is the sole reason for this company's existence... and drives every decision it makes. So it never uses mortgages to buy properties, it always keeps plenty of cash on hand, and it never burdens its balance sheet with too much debt.
Second, the Monthly Dividend Trust only enters deals with simple recession-proof businesses – like child-care facilities, convenience stores, auto shops, and restaurant chains. For added security, it likes these chains to have between 50 and 500 stores, then it buys the best locations within the chain. Each year, the investment committee reviews around $5 billion in potential transactions and buys into around 15% of the deals.
Finally, the Monthly Dividend Trust has little competition from Wall Street, so yields are higher. Imagine you had $200 million to invest in property and two weeks to close a deal. You could buy an office building. You could buy a warehouse. You could buy a stadium. You could buy a hospital. Or you could put together a portfolio of 100 small retail locations.
I don't know which one you would choose, but I'm pretty sure you wouldn't choose the retail portfolio. For one thing, you'd need to deal with 100 different tenants and administer 100 different properties. The deal would be more complicated. Your investment appraisal would be more costly, and your return would be less certain. So big institutional property investors leave this niche for specialists like the Monthly Dividend Trust.
The Monthly Dividend Trust’s official name is Realty Income and it trades under the symbol 'O' on the stock market. While the business is extremely stable, its stock price can bounce around a little. So try to buy on a pullback... or when the dividend yield gets above 5.5%...
If you're interested in earning more than the 1% your bank pays you, you need to know about Realty Income. It's safe... and it's devoted to sending you income.
Over the past few months, Tom has shown DailyWealth readers how to put together a portfolio of super-safe, big-income ideas that perform extraordinarily well in a tough market. Here's a selection:
These Bear Market Investments Pay 8% Dividends: Preferred stocks pay four or five times as much as regular stocks... and your principal is guaranteed.
You've Never Considered This 20% Income Opportunity: Invest your money with the best names in this sector and your money will slowly but surely compound into a fortune.
How to Make 15% Dividends and 50% Gains in a Turbulent Market: Volatility can wreak havoc on an income portfolio. Here's how to use it to your advantage.
This Cheat Sheet Contains the Best 212 Dividend Stocks in America: This list is the holy grail for income investors.
THE PIPELINE UPTREND IS GOING STRONG
A trend we began highlighting last year is still going strong... the trend of "pipelines up."
During normal times, companies that perform the basic task of transporting and storing natural gas are good friends to the income investor. They're boring "toll road" type companies... so they're not as risky as your typical stock. They also enjoy a special corporate status (called an "MLP") that allows them to pay large dividends to shareholders.
In late 2008, pipeline shares fell during the extremely "not normal" credit crisis period. The benchmark Alerian MLP index fell 51% in six months. But as we noted last April, the index "carved out a bottom" in early 2009... and its constituents offered yields of 10%. We highlighted the trend again during its July 2009 breakout.
In The Daily Crux