A 4.26% I Bond or a 5.56% Dividend Stock? Here’s What Retirees Should Know

Series I savings bonds issued from May 1, 2026 through Oct. 31, 2026 earn a composite rate of 4.26%. That rate is built from a 0.9% fixed rate and a 1.67% semiannual inflation rate. Treasury resets the inflation rate on November 1, about two weeks from now. On the dividend side, Realty Income (NYSE:O) had a trailing dividend yield of 5.56% as of Oct. 15, 2026. The two numbers measure different things, so the higher one does not decide the question for a retiree.

How I Bonds Pay, Reset and Mature

An I bond is a savings bond issued by the U.S. Treasury. It can’t be sold, and its interest rate tracks inflation. The composite rate has two parts. The fixed rate is set when you buy and never changes for the life of the bond. The inflation rate is set every May 1 and November 1 from changes in the non-seasonally adjusted Consumer Price Index for all Urban Consumers (CPI-U). So the 4.26% figure applies for six months at a time. It moves as inflation moves, and the combined rate can go up or down. When deflation hits, Treasury sets a floor under it: if inflation is negative enough to drag the combined rate below zero, “we stop at zero.”

The details matter for anyone who needs income to spend. I bonds earn interest monthly and compound it semiannually, but you wait to get all the money until you cash in the bond. They pay no monthly or quarterly checks. Other rules to know:

• Lockup: You can cash in an I bond after 12 months.
• Penalty: Cash in before 5 years and you lose the last 3 months of interest.
• Maturity: The bond earns interest for 30 years. Electronic bonds are paid automatically at maturity.
• Purchase cap: Each Social Security number can buy $10,000 in electronic I bonds per calendar year. Paper I bonds bought with a tax refund are no longer an option, because since January 1, 2025, I bonds are only available electronically through TreasuryDirect.

The government’s backing has limits. An I bond is a federal debt obligation, not a bank deposit, so FDIC insurance does not apply. The government promises to pay the accrued value under a formula Treasury sets. If your own costs (healthcare, for example) rise faster than CPI-U, the bond won’t keep up with them.

Reinvestment risk is real: the composite rate can fall, and a retiree counting on 4.26% could see a lower rate at the next reset. You can’t sell an I bond on the market, so its value doesn’t swing with interest rates the way a marketable Treasury sold before maturity can. Getting out early means taking the lockup and the three-month interest penalty.

Realty Income’s Monthly Check Against a Rate That Floats

Dividend safety comes first, because a high yield means little if the payout could be cut. Realty Income’s forward annualized dividend is $3.258 per share. Its 2026 guidance for adjusted funds from operations (AFFO, the cash-flow measure REITs use to fund dividends) is $4.44 to $4.45 per share. That sets the dividend at about 73% of the low end of guidance, leaving a buffer. Other safety indicators:

• Portfolio occupancy was 98.8% in the second quarter.
• The rent recapture rate on re-leased properties was 102.7%, meaning new leases brought in slightly more rent than the old ones.
• Its credit ratings are A3 from Moody’s, A- from S&P and A from Fitch.

Chief Financial Officer Jonathan Pong told analysts on the Aug. 5, 2026 call that “the watch list remains in the high 5% area,” spread across 137 individual tenants.

The risks are real too. 65.7% of annualized base rent comes from tenants without investment-grade ratings. Retail makes up 78.3% of the rent roll. Leverage, measured as net debt to annualized pro forma adjusted EBITDAre, rose to 5.4x from 5.2x. A board can cut a dividend. I bond interest can’t fall below zero.

The other side cuts the other way. A dividend can grow, and Realty Income’s has. The company has paid 673 consecutive monthly dividends and raised its payout for more than 31 consecutive years. Recent growth has been slow, though. The monthly payment went from $0.2695 at the November 2025 ex-dividend date to $0.2715 for October 2026, a rise of about 0.74%. That trails the inflation the I bond’s variable component is currently tracking. The latest declaration, on Oct. 13, 2026, kept the payment at the prior month’s level. A dividend can outpace inflation in some years and fall behind it in others. The I bond’s inflation component adjusts automatically.

The yield is also separate from what an owner actually earns, because the share price moves. The stock closed at $55.55 on Oct. 15, down 1.44% over one year and up 47.5% over ten. An I bond’s redemption value doesn’t drop. Realty Income’s market value can.

Taxes Often Decide Which Pays More

I bonds: Interest is owed to the federal government but exempt from state and local taxes. Cash-method taxpayers can postpone reporting the interest until the year they cash the bond or it matures, or they can report it each year. Deferral lets a retiree decide which year the income lands in. Interest may also be excluded from income if used for qualified higher education expenses. Income phase-outs apply, and the bond must be issued to someone at least 24 years old.

REIT dividends: Most of Realty Income’s payout is taxed as ordinary income each year, at full state rates as well. Under 26 U.S.C. § 199A(e)(3), a qualified REIT dividend is one that is neither a capital gain dividend nor qualified dividend income. That means it doesn’t get the 0%, 15%, or 20% rates that apply to qualified dividends. In exchange, 26 U.S.C. § 199A(b)(1)(B) allows a deduction of 20% of the aggregate amount of the qualified REIT dividends, which softens the bite. Any part of the payout classified as a return of capital cuts your cost basis, and it becomes taxable only after your basis in the stock has been reduced to zero. Inside an IRA, these differences mostly go away for the REIT. I bonds can only be bought through TreasuryDirect, so they stay in a taxable account.

Who Each Option Suits

I bonds suit retirees in high-tax states who don’t need this money for at least a year, want their principal to keep pace with CPI-U, and can live with a $10,000 annual cap and a rate that resets every six months. Realty Income fits retirees who need cash every month, can stand share price swings, and taking that the payout depends on tenants paying rent and on the board. They also need to watch the 65.7% of rent that comes from tenants without investment-grade ratings. If a monthly paycheck is the whole point, Realty Income isn’t the only name that pays on that schedule (we rounded up seven monthly payers in a free report here).

Contact [email protected] for any questions or corrections.