After 50 years of paying monthly dividends without fail, a better question might be, is Realty Income (NYSE: O) still a buy? The answer is a qualified yes. The big qualifier here is if you as an investor have little to no faith that brick-and-mortar is sustainable as a generator of income for retailers and real estate investment trusts (REITs).
Certainly, the pandemic plunge that has hammered, and indeed dealt a death blow to, multiple major chains and countless mom-and-pops makes murky the future of many a shopping mall and strip center.
But still, there are groceries to be bought, heads of hair to be cut, petunias to purchase, and just the draw of getting out and shopping as an experience in itself.
And that makes Realty Income an attractive buy and hold or retirement play, especially for investors interested in income and potential share price growth.
Making hay after buying a taco stand
The reasons are myriad. For starters, diversity and resiliency. San Diego-based Realty Income's first acquisition was a Taco Bell in 1970, right about when the company began its monthly streak of dividends, which now stands at 602 months.
Realty Income went public in 1994 and has posted 92 consecutive quarterly increases in that dividend while growing a portfolio the REIT says now includes more than 6,500 properties under long-term net lease agreements, properties that host more than 600 different tenants in 50 retail and other industries.
These are concentrated in free-standing properties in essential businesses. The company's list of top 20 tenants, in fact, reads like a who's who of where people shop in person, led by 248 Walgreens (NASDAQ: WBA) leases that account for 6% of Realty Income's revenue. Walmart (NYSE: WMT), Kroger (NYSE: KR), Home Depot (NYSE: HD)…they're all on there, too. (The one vulnerability that stands out are the two big movie theater operators -- AMC Theaters (NYSE: AMC) and Regal Cinemas (LSE: CINE) -- troubled enterprises which together account for 5.6% of the landlord's income.)
A rate of return that could soon rally
Realty Income has posted a compound average annual return of 15.3% since going public and currently boasts 98.5% occupancy. Of course, how much rent those occupants pay matters, and like every other CRE operator, Realty Income has taken a hit.
As of Oct. 12, its one-year total return is, in fact, -15.70% at a stock price of $63.19 per share. That's well off its 52-week high of $82.44 but well above its 52-week low of $42.50. The yield, however, is still 4.4% based on the current share price and the latest monthly dividend of $0.23.
And that's kind of the bottom line here for a REIT that calls itself "The Monthly Dividend Company."
Impressively, Realty Income has kept up that performance of late even though it collected only 86.5% of its rent in the second quarter and paid out only a relatively modest 81.5% of its adjusted funds from operations (AFFO) during the second quarter.
Investing in the present and future of brick-and-mortar
The company also has some of the best credit ratings among its retail REIT peers, a solid balance sheet, and the finances to keep acquiring and growing while waiting for rental payments and in-person shopping to return to normal.
Realty Income is not safe like a CD or a bond. It's an investment that carries risk built into the way it does business and how it makes money.
But, if you think brick-and-mortar is going to remain a thing, a stock this widely held for this long, and this vested in that industry, is both a good barometer and proxy for that segment and an investment worth making. I own a bit myself.