Retail REIT Realty Income Corporation (O - Free Report) has announced a hike in its common stock monthly cash dividend, rejoicing shareholders. This marks the company’s 95th dividend increase since its NYSE listing in 1994. The company will now pay 21.90 cents per share against 21.25 cents paid earlier. The new dividend also denotes a 4% increase compared to the same month in the prior year.
Realty Income will pay the dividend on Feb 15 to shareholders of record as of Feb 1, 2018. The latest dividend rate marks an annualized amount of $2.628 per share versus the prior rate of $2.55 per share.
Solid dividend payouts are arguably the biggest enticement for REIT investors and Realty Income remains committed to boosting shareholders’ wealth. The company enjoys a trademark on the phrase “The Monthly Dividend Company” and the February 2018 dividend payment not only marks its 571 consecutive monthly dividend payouts throughout its 49-year operating history, but also 81 consecutive quarterly increases.
In fact, the company has generated a compound average annual dividend growth of around 4.7% since its listing on the NYSE. Given its financial position and lower debt-to-equity ratio compared to that of the industry, this dividend rate is likely to be sustainable.
Notably, dwindling mall traffic amid shift of consumers toward online channels, store closures and bankruptcy of retailers have emerged as pressing concerns for most retail REITs, including Simon Property Group, Inc. (SPG - Free Report) , GGP Inc. and Macerich Company (MAC - Free Report) . However, not all are facing the brunt, as a few companies are still gaining even in this dismal scenario, backed by the robust business models.
In fact, this freestanding retail REIT — Realty Income — derives more than 90% of its annualized retail rental revenues from tenants belonging to service, non-discretionary and low-price retail business. Such businesses are less susceptible to economic recessions and competition from Internet retailing.
Moreover, the company’s solid underlying real estate quality and prudent underwriting at acquisitions have helped maintain its high occupancy levels consistently. Additionally, its same-store rent growth displayed limited operational volatility.
Realty Income also adheres to a conservative capital structure. It has modest leverage, robust liquidity, and continued access to attractively priced equity and debt capital. In addition, it has a well-laddered debt maturity schedule.
Nonetheless, the company’s substantial exposure to single-tenant assets raises its risks associated with tenant default. Further, generation of notable rental revenues from assets leased to drug stores and rate hike add to its woes.
Shares of Realty Income have underperformed the industry it belongs to, in three months’ time. This Zacks Rank #3 (Hold) company’s shares have descended 5.9%, while the industry incurred loss of 2.8% during this time frame. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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