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Is Realty Income's (O) 110th Monthly Dividend Hike Sustainable?
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Realty Income Corporation (O - Free Report) recently announced its 110th common stock monthly dividend hike since the company’s NYSE listing in 1994. The company will now pay 23.50 cents per share compared with the 23.45 cents paid earlier.
The increased dividend will be paid on Apr 15, to shareholders on record as of Apr 1, 2021. The latest dividend rate marks an annualized amount of $2.82 per share versus the prior rate of $2.814 per share. Based on the company’s share price of $63.96 on Mar 16, it results in a dividend yield of 4.41%.
Solid dividend payouts are the biggest enticement for REIT investors, and Realty Income remains committed to boosting shareholder wealth. Remarkably, this retail REIT enjoys a trademark of the phrase “The Monthly Dividend Company.”
The latest hike comes by a marginal figure from the prior dividend paid, but the April dividend payment marks the company’s 609th consecutive monthly dividend payment in its 52-year operating history. Encouragingly, the company has made 94 consecutive quarterly dividend hikes. The retail REIT has witnessed compound average annual dividend growth of 4.4% since its listing on the NYSE.
The latest hike reflects Realty Income’s ability to generate decent cash-flow growth through its operating platform and high-quality portfolio. With a current cash-flow growth rate of 4.33%, as against the industry’s average of a negative 20.37%, the increased dividend is likely to be sustainable.
Notably, Realty Income derives 95% of its annualized retail contractual rental revenues from tenants with a service, non-discretionary and/or low-price-point component to their business. Such businesses are less susceptible to economic recessions as well as competition from Internet retailing. This boosts the stability of rental revenues and generates predictable cash flows.
Particularly, the company’s top four industries (representing more than 37% of rental revenues) – convenience stores (accounting for 11.9% of rent), grocery stores (9.8%), drug stores (8.2%), and dollar stores (7.6%) sell essential goods and continued to thrive even during the pandemic. As such, the company has received nearly all of the contractual rent due from tenants belonging to these industries since the pandemic started.
Through Jan 31, 2021, the REIT has collected 93.6% of contractual rent due for the fourth quarter. Further, the company has collected 89.9% of contractual rent due for the fourth quarter from the top 20 tenants and 100% of contractual rent due for the quarter from its investment-grade tenants. In addition, situations have improved now compared to the outbreak of the pandemic, and with a vast majority of Realty Income’s retail locations being now open, rent collection trends are likely to improve further.
Nonetheless, businesses of physical stores widely depend on customer traffic, but consumers have been avoiding crowded public spaces due to the pandemic and are increasingly opting for online purchases. This, in turn, is taking a huge toll on tenants’ liquidity, thereby making it difficult to meet their rental obligations. As a result, retail REITs, which have already been battling store closures and bankruptcy issues, are feeling the heat. In fact, apart from Realty Income, this turbulence is affecting other retail REITs, including Macerich (MAC - Free Report) , Simon Property (SPG - Free Report) and Kimco (KIM - Free Report) among others.
For Realty Income, too, its tenants from theatre as well as health and fitness industries are being impacted by the coronavirus crisis. Uncollected rent continues to be mainly in the theater industry, representing around 80% of uncollected rent in December. The remaining part is related to the health and fitness industry, which mainly represents 16% of uncollected rent.
Nevertheless, Realty Income emerged as a company with decent financial health through its efforts to boost balance-sheet strength despite such a crisis. The REIT exited 2020 with cash and cash equivalents of $824.5 million, full availability under its $3 billion multicurrency revolving-credit facility, and no borrowing outstanding on its $1-billion commercial paper program. The company ended the quarter with modest leverage and strong coverage metrics. Further, Realty Income has a credit rating of A- and A3 from Standard & Poor’s and Moody’s, respectively, enabling it to procure debt financing at attractive costs.
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Is Realty Income's (O) 110th Monthly Dividend Hike Sustainable?
Realty Income Corporation (O - Free Report) recently announced its 110th common stock monthly dividend hike since the company’s NYSE listing in 1994. The company will now pay 23.50 cents per share compared with the 23.45 cents paid earlier.
The increased dividend will be paid on Apr 15, to shareholders on record as of Apr 1, 2021. The latest dividend rate marks an annualized amount of $2.82 per share versus the prior rate of $2.814 per share. Based on the company’s share price of $63.96 on Mar 16, it results in a dividend yield of 4.41%.
Solid dividend payouts are the biggest enticement for REIT investors, and Realty Income remains committed to boosting shareholder wealth. Remarkably, this retail REIT enjoys a trademark of the phrase “The Monthly Dividend Company.”
The latest hike comes by a marginal figure from the prior dividend paid, but the April dividend payment marks the company’s 609th consecutive monthly dividend payment in its 52-year operating history. Encouragingly, the company has made 94 consecutive quarterly dividend hikes. The retail REIT has witnessed compound average annual dividend growth of 4.4% since its listing on the NYSE.
The latest hike reflects Realty Income’s ability to generate decent cash-flow growth through its operating platform and high-quality portfolio. With a current cash-flow growth rate of 4.33%, as against the industry’s average of a negative 20.37%, the increased dividend is likely to be sustainable.
Notably, Realty Income derives 95% of its annualized retail contractual rental revenues from tenants with a service, non-discretionary and/or low-price-point component to their business. Such businesses are less susceptible to economic recessions as well as competition from Internet retailing. This boosts the stability of rental revenues and generates predictable cash flows.
Particularly, the company’s top four industries (representing more than 37% of rental revenues) – convenience stores (accounting for 11.9% of rent), grocery stores (9.8%), drug stores (8.2%), and dollar stores (7.6%) sell essential goods and continued to thrive even during the pandemic. As such, the company has received nearly all of the contractual rent due from tenants belonging to these industries since the pandemic started.
Through Jan 31, 2021, the REIT has collected 93.6% of contractual rent due for the fourth quarter. Further, the company has collected 89.9% of contractual rent due for the fourth quarter from the top 20 tenants and 100% of contractual rent due for the quarter from its investment-grade tenants. In addition, situations have improved now compared to the outbreak of the pandemic, and with a vast majority of Realty Income’s retail locations being now open, rent collection trends are likely to improve further.
Nonetheless, businesses of physical stores widely depend on customer traffic, but consumers have been avoiding crowded public spaces due to the pandemic and are increasingly opting for online purchases. This, in turn, is taking a huge toll on tenants’ liquidity, thereby making it difficult to meet their rental obligations. As a result, retail REITs, which have already been battling store closures and bankruptcy issues, are feeling the heat. In fact, apart from Realty Income, this turbulence is affecting other retail REITs, including Macerich (MAC - Free Report) , Simon Property (SPG - Free Report) and Kimco (KIM - Free Report) among others.
For Realty Income, too, its tenants from theatre as well as health and fitness industries are being impacted by the coronavirus crisis. Uncollected rent continues to be mainly in the theater industry, representing around 80% of uncollected rent in December. The remaining part is related to the health and fitness industry, which mainly represents 16% of uncollected rent.
Nevertheless, Realty Income emerged as a company with decent financial health through its efforts to boost balance-sheet strength despite such a crisis. The REIT exited 2020 with cash and cash equivalents of $824.5 million, full availability under its $3 billion multicurrency revolving-credit facility, and no borrowing outstanding on its $1-billion commercial paper program. The company ended the quarter with modest leverage and strong coverage metrics. Further, Realty Income has a credit rating of A- and A3 from Standard & Poor’s and Moody’s, respectively, enabling it to procure debt financing at attractive costs.
Shares of this Zacks Rank #3 (Hold) company have gained 7.5% over the past three months compared with the industry’s rally of 16.5%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
+1,500% Growth: One of 2021’s Most Exciting Investment Opportunities
In addition to the stocks you read about above, would you like to see Zacks’ top picks to capitalize on the Internet of Things (IoT)? It is one of the fastest-growing technologies in history, with an estimated 77 billion devices to be connected by 2025. That works out to 127 new devices per second.
Zacks has released a special report to help you capitalize on the Internet of Things’s exponential growth. It reveals 4 under-the-radar stocks that could be some of the most profitable holdings in your portfolio in 2021 and beyond.
Click here to download this report FREE >>