Realty Income Corp: Reliable Dividends Paid for 613 Consecutive Months
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When is a dividend stock considered reliable?
Well, despite the cliché that past performance is no guarantee of future results, a stock’s track record is perhaps one of the best indicators of its quality.
The reality is, the future is unpredictable, but we know the economic ups and downs that have happened in the past. Therefore, if a company has delivered reliable dividends through those ups and downs, it has, at the very least, demonstrated its resilience. And few would dispute that, all else being equal, investors are more likely to go for the stock that has a solid dividend-paying record than the stock that has cut its payout at the first sign of a recession.
Among the reliable dividend stocks, one name stands out: Realty Income Corp (NYSE:O).
To be clear, I’m not saying O stock is better than the other dividend stocks. But in a moment, you’ll see why it could be special.
On July 13, Realty Income’s board of directors declared a monthly cash dividend of $0.2355 per share, which will be paid on August 13 to shareholders of record as of August 2. That will mark Realty Income Corp stock’s 613th consecutive monthly dividend. (Source: “613th Consecutive Common Stock Monthly Dividend Declared By Realty Income,” Realty Income Corp, July 13, 2021.)
Think about that for a second: 613 months is more than 51 years! There are other companies with more than a half-century dividend-paying record. But decades ago, most companies were paying either annual or quarterly dividends. Realty Income, on the other hand, was dishing out dividend checks every month. It’s the frequency of the payments—along with the longevity—that makes the company stand out.
And there’s more.
Since Realty Income went public in 1994, O stock has delivered 111 dividend increases, including 95 consecutive quarterly increases. Therefore, investors not only collected reliable dividends from Realty Income Corp stock every month, but also got a pay raise every three months. (Source: “Dividend Payment Information,” Realty Income Corp, last accessed July 27, 2021.)
In fact, the company has proudly branded itself as “The Monthly Dividend Company.” And based on its track record, I’d say it rightfully deserves that title.
The reason Realty Income can pay such reliable monthly dividends is the nature of its business. Structured as a real estate investment trust (REIT), Realty Income has a portfolio of more than 6,600 properties that are subject to long-term, net lease agreements with commercial clients. The properties, which are diversified across 50 U.S. states, Puerto Rico, and the U.K., are leased to more than 600 clients in 56 industries. (Source: “Investor Presentation,” Realty Income Corp, last accessed July 27, 2021.)
Because tenants pay rent on a monthly basis, Realty Income is able to use the rent collected from its commercial properties to support its monthly O stock dividends. And thanks to a large and diverse tenant base, the REIT’s cash flow has remained resilient throughout economic cycles.
Of course, the COVID-19 pandemic had brought unprecedented challenges to the commercial real estate industry. And even some of the biggest REITs had to reduce their payouts last year.
Not Realty Income, though. The company continued its monthly dividend track record—including raising Realty Income stock’s payout every quarter—even during the height of the economic crisis.
Financially, Realty Income looks solid. In 2020, the company generated adjusted funds from operations (AFFO) of $3.39 per share, which actually represented an improvement from the $3.32 per share in 2019. (Source: “Realty Income Announces Operating Results For Fourth Quarter And 2020,” Realty Income Corp, February 22, 2021.)
On the dividend front, Realty Income increased the total dividends paid per share of O stock by 3.1% year-over-year to $2.794 in 2020. In other words, Realty Income Corp stock’s payout was covered by the company’s AFFO.
Fast-forward to this year and, in the first quarter, the company’s AFFO came in at $0.86 per share. Considering that the REIT paid three monthly dividends totaling $0.7035 per share for the quarter, the dividend was covered once again. (Source: “Realty Income Announces Operating Results for First Quarter 2021,” Realty Income Corp, May 3, 2021.)
In the first quarter of 2021, Realty Income collected 94.1% of its contractual rent across its total portfolio. And that figure was achieved despite collecting just 14.0% of its contractual rent from its theater clients. The reality is, even though most movie theaters still aren’t operating at full capacity, the REIT’s exposure to the industry is only 5.6% of its total annualized contractual rental revenue. Therefore, the company can generate enough cash flow to pay dividends to O stock investors despite the downturn in the theater industry.
Bottom Line on Realty Income Corp
Trading around $70.00 per share, Realty Income Corp stock offers an annual dividend yield of just over four percent.
While there are REITs with higher payouts, it’s hard to dispute that, when it comes to providing investors with a reliable stream of passive monthly income, O stock is in a league of its own.