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Is Realty Income's (O) Latest Dividend Hike Sustainable?

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Realty Income Corporation (O - Free Report) announced its 117th common stock monthly dividend hike since the company’s NYSE listing in 1994. Delighting its shareholders, the company will pay 24.80 cents per share in the dividend compared with the 24.75 cents paid earlier.

The increased dividend will be paid out on Oct 14 to shareholders on record as of Oct 3, 2022. The latest dividend rate marks an annualized amount of $2.976 per share compared with the prior rate of $2.97. Based on the company’s share price of $65.91 on Sep 13, the latest hike results in a dividend yield of 4.52%.

Solid dividend payouts are the biggest enticements for REIT investors, and Realty Income is committed to boosting its shareholder wealth. This retail REIT holds the trademark of the phrase “The Monthly Dividend Company.”

In June, it raised its dividend to 24.75 cents per share from the 24.70 cents paid earlier. The increased dividend was paid out on Jul 15 to shareholders on record as of Jul 1, 2022.

Though the latest hike marks a marginal increase from the prior dividend, the October payout will be the company’s 627th consecutive monthly dividend payout in its 53-year operating history.

O made 100 consecutive quarterly dividend hikes. This retail REIT has witnessed compound average annual dividend growth of 4.4% since its listing on the NYSE. Check Realty Income’s dividend history here.

The latest hike reflects Realty Income’s ability to generate decent cash flow through its operating platform and high-quality portfolio.

Realty Income derives more than 90% of its annualized retail contractual rental revenues from tenants with a service, non-discretionary and a/or low-price-point component to their business. Such businesses are less susceptible to economic recessions and competition from Internet retailing. These provide more reliable streams of income, which boost the stability of rental revenues and generate predictable cash flows.

Also, its diversified tenant base, accretive buyouts and robust balance sheet bode well for its growth. Management expects the full-year acquisition volume to be more than $6 billion.

Realty Income exited the second quarter of 2022 with nearly $3.3 billion of liquidity. The company ended the quarter with modest leverage and strong coverage metrics, with net debt to annualized pro forma adjusted EBITDAre of 5.2X and a fixed charge coverage of 5.5X.

Further, Realty Income has a well-laddered debt-maturity schedule with a weighted average maturity of 7.6 years. Manageable near-term maturities and ample liquidity provide the company with the financial flexibility to tide over any mayhem and bank on growth scopes. Realty Income has a credit rating of A- (Stable) and A3 (Stable) 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 risen 1.2% in the past six months against its industry’s fall of 6.8%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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Stocks to Consider

Some better-ranked stocks from the REIT sector include National Retail Properties, Inc. (NNN - Free Report) , STORE Capital Corporation (STOR - Free Report) and Kite Realty Group Trust (KRG - Free Report) .

National Retail Properties currently holds a Zacks Rank of 2 (Buy). National Retail Properties’ projected long-term growth rate is 4.00%. The Zacks Consensus Estimate for NNN’s 2022 funds from operations (FFO) per share has been revised marginally upward in the past two months.

Currently, STORE Capital carries a Zacks Rank of 2. The Zacks Consensus Estimate for STOR’s ongoing-year FFO per share has moved 1.4% north to $2.27 over the past month, suggesting an increase of 20.7% year over year.

Kite Realty Group Trust currently carries a Zacks Rank of 2. The Zacks Consensus Estimate for KRG’s 2022 FFO per share has been revised 1.1% upward to $1.84 in a month.

Note: Anything related to earnings presented in this write-up represents funds from operations (FFO) — a widely used metric to gauge the performance of REITs.

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