Updated on August 28th, 2024 by Bob Ciura
Investors that are interested in owning stocks for income can find it easy to be drawn to Real Estate Investment Trusts, or REITs.
These stocks offer investors the chance to own a piece of a trust that leases out properties and passes essentially all of its earnings back to shareholders in the form of dividends.
Realty Income (O) has a 5.0% dividend yield and an extraordinary dividend history. It also pays its dividends monthly instead of quarterly.
There are 78 companies that pay monthly dividends. You can download our full Excel spreadsheet of all monthly dividend stocks along with metrics that matter like dividend yield and payout ratio) by clicking on the link below:
This article will discuss Realty’s business model, its growth prospects, and its dividend analysis in detail.
Business Overview
Realty Income is a retail-focused Real Estate Investment Trust that has earned a sterling reputation for its dividend growth history.
Part of its appeal certainly is not only in its actual payout history, but the fact that these payouts are made monthly instead of quarterly.
Indeed, Realty Income has declared more than 630 consecutive monthly dividends, a track record that is unprecedented among monthly dividend stocks.
The company has increased its dividend more than 110 times since its initial public offering in 1994. Realty Income is a member of the Dividend Aristocrats.
The company’s long history of dividend payments and increases is due to its high-quality business model and diversified property portfolio.
The trust employs a highly scalable business model that has enabled it to grow into a massive landlord of more than 15,000 properties.
Source: Investor Presentation
It owns retail properties that are not part of a wider retail development (such as a mall) but instead are standalone properties.
This means the properties are viable for many tenants, including government services, healthcare services, and entertainment.
The results of this model speak for themselves: 13.6% compound average annual total return since the 1994 listing on the New York Stock Exchange, a lower beta value (a measure of stock volatility) than the S&P 500 in the same time period, and positive earnings-per-share growth in 27 out of the past 28 years.
On August 5, 2024, Realty Income reported second-quarter results. For the quarter, net income available to common stockholders of $256.8 million, or $0.29 per share. Adjusted Funds from Operations (AFFO) per share increased by 6.0% to $1.06, compared to the same quarter in 2023.
Growth Prospects
Realty Income’s growth has been quite consistent; the trust has a very long history of growing its asset base and its average rent, which have collectively driven its FFO-per-share growth.
We expect compound annual growth of FFO-per-share of approximately 2.2% over the next five years for Realty Income.
Source: Investor Presentation
This growth will be achieved through property acquisitions, and rental increases on existing properties. The company invested $805.8 million during the quarter at an initial weighted average cash yield of 7.9% and achieved a rent recapture rate of 105.7% on properties re-leased.
Realty Income expects to increase its investments in international markets moving forward. It made a first deal in the UK in 2019 and plans to do more such deals in the future when it finds attractive targets.
These acquisitions will help drive profits in the long run, although they may not pay off immediately, as the issuance of new shares dilutes shareholders in the near term.
Realty Income’s properties are relatively Amazon-proof, as the REIT owns standalone properties that can be used as cinemas, fitness centers, dollar stores, and more.
Realty Income’s properties are in demand and will likely remain so. The occupancy rate across the portfolio is around 99%, and tenants generally report high rent coverage ratios.
Dividend Analysis
Realty Income’s dividend history is second to none in the world of REITs. Its dividend has been increased over 110 times since the company came public in 1994, and the payout has increased by roughly 4% per year on average.
The dividend is also safe considering not only this extraordinary history of boosting the payout throughout all types of economic conditions but also because the trust pays out a very reasonable 76% of adjusted FFO.
REITs are required to pay out most of their income in the form of dividends, so Realty Income’s dividend payout ratio will never be low. We see ~80% of FFO as an acceptable payout ratio for a REIT, particularly for one that is growing FFO-per-share very consistently.
That means that even if FFO-per-share were to go flat for some period of time, the dividend is still sustainable. We expect the payout to continue to rise in the mid-single digits annually, as it has for so many years.
Realty Income is able to maintain this record not only because its business is fundamentally superior, but also because its capital structure is conservative.
Final Thoughts
REITs are favorites among dividend investors because they pay out the vast majority of their earnings to shareholders via dividends, which generally leads to high yields.
Realty Income’s 5% current yield is not the highest in the REIT universe, but still pretty attractive, especially when we consider the extremely consistent dividend growth.
For income investors looking for a yield that is more than twice as high as the yield of the broader market and for dividend safety that is not a concern, Realty Income fits the bill. Realty Income is not growing overly fast, but growth has been very consistent.
The combination of a solid dividend yield and expected future dividend increases is attractive.
Don’t miss the resources below for more monthly dividend stock investing research.
- The Monthly Dividend Stocks List
- 20 Highest Yielding Monthly Dividend Stocks
- 10 Cheapest Monthly Dividend Stocks
- 10 Safest Monthly Dividend Stocks
- 3 Top ‘Hold Forever’ Monthly Dividend Stocks
And see the resources below for more compelling investment ideas for dividend growth stocks and/or high-yield investment securities.
- Dividend Kings: 50+ years of rising dividends
- Dividend Champions: 25+ years of rising dividends
- Dividend Aristocrats: 25+ years of rising dividends and in the S&P 500
- Dividend Achievers: 10+ years of rising dividends and in the NASDAQ
- High Dividend Stocks: 5%+ dividend yields
- Blue Chip Stock: Kings, Aristocrats, and Achievers
- MLPs: List of MLPs and more
- REITs: List of REITs and more
- BDCs: List of BDCs and more