Realty Income Corporation (O - Free Report) recently announced its 103rd common stock monthly dividend hike since the company’s NYSE listing in 1994. The company will now pay 22.70 cents per share compared with the 22.65 cents paid earlier.
The increased dividend will be paid on Oct 15 to shareholders on record as of Oct 1, 2019. The latest dividend rate marks an annualized amount of $2.724 per share versus the prior rate of $2.718 per share. Based on the company’s share price of $75.77 on Sep 17, it results in a dividend yield of around 3.6%.
Notably, solid dividend payouts are the biggest enticement for REIT investors and Realty Income remains committed to boosting shareholders’ wealth. The company enjoys a trademark of the phrase “The Monthly Dividend Company”.
Although the latest hike comes by a marginal figure, it marks the company’s 591 consecutive monthly dividend payments throughout its 50-year operating history. Moreover, the company has made 88 consecutive quarterly dividend hikes, which is encouraging. In fact, the retail REIT has witnessed compound average annual dividend growth of around 4.5% since its listing on the NYSE.
The latest hike reflects Realty Income’s ability to generate solid cash flow growth through its operating platform and high-quality portfolio. With a current cash-flow growth rate of 3.39%, ahead of the industry’s average of 3.10%, the increased dividend is likely to be sustainable.
It’s no secret that in recent years, the retail REIT industry has been plagued with issues like shift of consumers toward online channels, dwindling mall traffic, store closures and bankruptcy of retailers. These have resulted in turbulence in the retail real estate market, forcing structural changes. Even the likes of Simon Property Group, Inc. (SPG - Free Report) , Kimco Realty Corporation (KIM - Free Report) and Macerich Company (MAC - Free Report) were not immune and have made aggressive attempts to adapt to the changing scenarios.
Amid these, Realty Income has been able to differentiate itself by deriving more than 90% of the company’s annualized retail 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.
The company’s accretive acquisitions and solid balance-sheet strength augur well for long-term growth. Prudent underwriting at acquisitions has helped maintain high occupancy levels consistently. Additionally, its same-store rent growth underlines limited operational volatility.
Nonetheless, the company’s exposure to single-tenant assets escalates risks associated with tenant default. Further, despite Realty Income’s effort to diversify the tenant base, its tenants in convenience stores and drug stores industry accounted for around 11.9% and 9.3% of the company’s rental revenues for the quarter ended Jun 30, 2019. This makes its results susceptible to any adverse changes in these industries. Also, the choppy environment and tenant-credit issues are concerns for the retail real estate industry.
Realty Income currently carries a Zacks Rank #3 (Hold). In the year-to-date period, shares of the company have outperformed the industry. While the stock has appreciated 20.2%, the industry has gained 14.5% during this period. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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