Realty Income (NYSE: O) is a prototype for what a real estate investment trust (REIT) should be: a reliable producer of income at a reasonable level through decades of economic cycles, along with prospects for stock-price growth and management that has a proven record of investing in the company to the benefit of itself and its shareholders.
Indeed, a long record of performance -- including more than 50 years of monthly dividends without fail -- has been putting this venerable equity near or atop the list of stocks recommended by columnists -- including ours -- brokers, and other investing mavens for years.
The 'Monthly Dividend Company' and a healthy yield
Realty Income bills itself as the "Monthly Dividend Company," and it's done just that, paying shareholders for 611 months as of July 1. Not only that, it’s raised the dividend 95 straight quarters, recording compound annualized dividend growth of 4.4% since it joined the New York Stock Exchange in 1994.
And it’s not just the monthly dividends. Realty Income stock overall has notched compound annual growth of 15.2% in those 27 years, a tidy bit above the not-too-shabby 10.08% for the S&P 500 over that period.
Realty Income stock closed at $67.48 on July 2, 6.08% off its 52-week high of $71.84 reached on April 29 and giving it a yield of 4.19% based on an annual dividend payout of $2.83 per share. Even during the depth of the shutdowns that hammered so many retail REITs, it dipped only to $56.33 per share on July 9, 2020.
Triple net leases and growing fast
San Diego-based Realty Income operates under the triple net lease model, meaning the tenants pick up the tab for maintenance, property taxes, and insurance. That helps create a reliable flow of income the REIT uses to meet its basic requirement of paying out at least 90% of its taxable income to shareholders.
And it does that from a large and growing portfolio that contains more than 6,600 properties under long-term leases in all 50 states, Puerto Rico, and the United Kingdom. There’s diversity in all those numbers, too, with 600 different clients in 56 retail and other industries, the company says.
Realty Income also is continuing to grow and diversify, most notably with the recent announcement that it would acquire rival VEREIT in an all-stock deal that will create a portfolio of more than 10,000 properties and add more office and industrial exposure.
The Millionacres bottom line
Realty Income makes no bones about its ambitions. In its most recent investor presentation, the company says it’s already a top-10 global REIT and wants to join the top five while doubling its enterprise value to $50 billion.
But that doesn’t mean sacrificing those payouts that have helped make Realty Income what it is. In the same breath -- or on the same page in the presentation -- the company also pledges: "To continue treating the dividend as sacrosanct to our DNA."