Ushering in good news for its shareholders, Realty Income Corporation (O - Free Report) recently announced its 97th dividend hike since the company’s NYSE listing in 1994. The company will now pay 22 cents per share compared with the 21.95 cents paid earlier.
Realty Income will pay the dividend on Jul 13 to shareholders on record as of Jul 2, 2018. The latest dividend rate marks an annualized amount of $2.64 per share versus the prior rate of $2.634 per share. Based on the company’s share price of $52.85 on Jun 19, this results in a dividend yield of around 5%, which is marginally ahead of the industry’s yield of 4.94%. This is likely to draw investors’ attention to the stock, to some extent.
Admittedly, 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 July 2018 dividend payment will mark its 83 consecutive quarterly increases, as well as payment of more than $5.5 billion throughout the company’s 49-year operating history. In fact, this retail REIT 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 the industry, the latest 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 Kimco Realty Corp. (KIM - Free Report) , GGP Inc. and Macerich Company (MAC - Free Report) . However, Realty Income has been able to differentiate itself by deriving 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.
The company’s solid underlying real estate quality and prudent underwriting at acquisitions has helped maintain high occupancy levels consistently. In fact, since 1996, the company’s occupancy level has never been below 96%. Moreover, in first-quarter 2018, it attained the highest quarter-end occupancy in more than 10 years. Additionally, its same-store rent growth underlines limited operational volatility.
Moreover, Realty Income 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 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 outperformed the industry it belongs to, in the past three months. This Zacks Rank #3 (Hold) stock has gained 5.9%, while the industry reported growth of 5.5% during the same time frame. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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