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Is Realty Income's (O) Latest Dividend Hike Sustainable?
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Boosting shareholders’ wealth, Realty Income Corporation (O - Free Report) announced an increase in its common stock monthly cash dividend to 25.60 cents per share from 25.55 cents paid out earlier. This marked its 122nd common stock monthly dividend hike since its listing on the NYSE in 1994.
The increased dividend will be paid out on Oct 13 to shareholders on record as of Oct 2, 2023. The latest dividend rate marks an annualized amount of $3.072 per share compared with the prior rate of $3.066. Based on the company’s share price of $55.15 on Sep 12, the latest hike results in a dividend yield of 5.57%.
Though the latest hike marks a marginal increase from the prior dividend, the latest dividend announced will be the company’s 639th consecutive monthly dividend payout in its 54-year operating history.
Solid dividend payouts are the biggest enticements for real estate investment trust (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.” It has made 104 consecutive quarterly dividend hikes. This retail REIT has witnessed compound average annual dividend growth of 4.3% since its listing on the NYSE.
Moreover, Realty Income has increased its dividend 23 times in the last five years and has a five-year annualized dividend growth rate of 3.05%. Check Realty Income’s dividend history here.
The latest hike reflects O’s ability to generate decent cash flow through its operating platform and high-quality portfolio. It derives a majority of its annualized retail contractual rental revenues from tenants with a service, non-discretionary and 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. For 2023, we estimate rental revenues (including reimbursables) to increase 15.6% year over year.
Also, the company’s diversified tenant base and accretive buyouts bode well for its growth. In August, Realty Income unveiled that it would invest around $950 million in The Bellagio, situated at the center of the Las Vegas Strip in Las Vegas, NV, at a valuation of $5.1 billion. This marks the retail REIT’s second investment in the gaming industry. The latest move is in sync with the company’s portfolio diversification efforts.
Moreover, Realty Income maintains a healthy balance sheet position and exited the second quarter of 2023 with $3.5 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 5.3X and a fixed charge coverage of 4.6X. O also enjoys 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.
With ample financial flexibility, the company remains well-poised to tide over any challenges and bank on growth scopes. Moreover, with healthy operating fundamentals, a lower debt-to-equity ratio compared with the industry and a solid financial position, we expect the latest dividend rate to be sustainable.
However, Realty Income’s substantial exposure to single-tenant assets raises its risks associated with tenant default. Also, high interest rates add to its concerns. Our estimate for interest expenses indicates a year-over-year rise of 37.2% in 2023.
Shares of this Zacks Rank #3 (Hold) company have declined 9.9% in the past three months, wider than its industry’s decrease of 1%.
The Zacks Consensus Estimate for Essential Properties Realty Trust’s ongoing year’s FFO per share has been revised marginally upward in the past month to $1.66.
The Zacks Consensus Estimate for Tanger Factory Outlet Centers’ current-year FFO per share has been raised marginally in the past month to $1.88.
Note: Anything related to earnings presented in this write-up represent funds from operations (FFO) — a widely used metric to gauge the performance of REITs.
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Is Realty Income's (O) Latest Dividend Hike Sustainable?
Boosting shareholders’ wealth, Realty Income Corporation (O - Free Report) announced an increase in its common stock monthly cash dividend to 25.60 cents per share from 25.55 cents paid out earlier. This marked its 122nd common stock monthly dividend hike since its listing on the NYSE in 1994.
The increased dividend will be paid out on Oct 13 to shareholders on record as of Oct 2, 2023. The latest dividend rate marks an annualized amount of $3.072 per share compared with the prior rate of $3.066. Based on the company’s share price of $55.15 on Sep 12, the latest hike results in a dividend yield of 5.57%.
Though the latest hike marks a marginal increase from the prior dividend, the latest dividend announced will be the company’s 639th consecutive monthly dividend payout in its 54-year operating history.
Solid dividend payouts are the biggest enticements for real estate investment trust (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.” It has made 104 consecutive quarterly dividend hikes. This retail REIT has witnessed compound average annual dividend growth of 4.3% since its listing on the NYSE.
Moreover, Realty Income has increased its dividend 23 times in the last five years and has a five-year annualized dividend growth rate of 3.05%. Check Realty Income’s dividend history here.
The latest hike reflects O’s ability to generate decent cash flow through its operating platform and high-quality portfolio. It derives a majority of its annualized retail contractual rental revenues from tenants with a service, non-discretionary and 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. For 2023, we estimate rental revenues (including reimbursables) to increase 15.6% year over year.
Also, the company’s diversified tenant base and accretive buyouts bode well for its growth. In August, Realty Income unveiled that it would invest around $950 million in The Bellagio, situated at the center of the Las Vegas Strip in Las Vegas, NV, at a valuation of $5.1 billion. This marks the retail REIT’s second investment in the gaming industry. The latest move is in sync with the company’s portfolio diversification efforts.
Moreover, Realty Income maintains a healthy balance sheet position and exited the second quarter of 2023 with $3.5 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 5.3X and a fixed charge coverage of 4.6X. O also enjoys 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.
With ample financial flexibility, the company remains well-poised to tide over any challenges and bank on growth scopes. Moreover, with healthy operating fundamentals, a lower debt-to-equity ratio compared with the industry and a solid financial position, we expect the latest dividend rate to be sustainable.
However, Realty Income’s substantial exposure to single-tenant assets raises its risks associated with tenant default. Also, high interest rates add to its concerns. Our estimate for interest expenses indicates a year-over-year rise of 37.2% in 2023.
Shares of this Zacks Rank #3 (Hold) company have declined 9.9% in the past three months, wider than its industry’s decrease of 1%.
Image Source: Zacks Investment Research
Stocks to Consider
Some better-ranked stocks from the retail REIT sector are Essential Properties Realty Trust (EPRT - Free Report) and Tanger Factory Outlet Centers (SKT - Free Report) , each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The Zacks Consensus Estimate for Essential Properties Realty Trust’s ongoing year’s FFO per share has been revised marginally upward in the past month to $1.66.
The Zacks Consensus Estimate for Tanger Factory Outlet Centers’ current-year FFO per share has been raised marginally in the past month to $1.88.
Note: Anything related to earnings presented in this write-up represent funds from operations (FFO) — a widely used metric to gauge the performance of REITs.