B
enzinga and Yahoo Finance LLC may earn commission or revenue on some items through the links below. Realty Income Corp (NYSE:O) is a gold standard for investors seeking monthly income, trademarked as The Monthly Dividend Company. With over 15,600 commercial properties and 660 consecutive monthly dividend payments, it offers predictable income in unpredictable markets. Another benefit of investing in Realty Income isn't reflected in the yield column – depreciation. This tax advantage can be powerful, allowing REITs to pay out more in dividends than their taxable income.

    In 2024, Realty Income paid $3.126 per share in dividends, exceeding its estimated taxable income by over 126%. While this may seem concerning, it's a feature of REIT taxation, not a flaw. Thanks to depreciation, a non-cash expense that reduces taxable income without affecting actual earnings, REITs can distribute more than they report in taxable income.

    For Realty Income shareholders, the dividend payout was broken down into ordinary income ($2.17598 per share) and nontaxable distribution ($0.94952 per share). The latter reduces the investor's cost basis, potentially leading to higher capital gains taxes when sold. However, for long-term holders, this trade-off can be more favorable than paying ordinary income tax on the full dividend amount.

    Depreciation allows investors to defer taxes today and potentially pay a lower rate later. Realty Income's reliable dividend and consistent growth have drawn investors in. The company recently announced its 131st dividend increase since listing on the NYSE, raising the monthly payout from $0.2685 to $0.2690 per share. While this may seem modest, compounding reliable growth over decades adds up.