Monthly Dividend Stock In Focus: Realty Income - Sure Dividend

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Monthly Dividend Stock In Focus: Realty Income

Published on April 25th, 2022 by Felix Martinez

Investors that are interested in owning stocks for income can find it easy to be drawn to Real Estate Investment Trusts, or REITs. These stocks offer investors the chance to own a piece of a trust that leases out properties and passes essentially all of its earnings back to shareholders in the form of dividends.

Realty Income (O) has a 4% dividend yield, and an extraordinary dividend history. And, Realty Income pays its shareholders monthly instead of quarterly, which affords investors faster compounding of wealth.

There are only 50 companies that pay monthly dividends. You can download our full Excel spreadsheet of all monthly dividend stocks (along with metrics that matter like dividend yield and payout ratio) by clicking on the link below:


This article will discuss Realty’s business model, its growth prospects, and its dividend in detail.

Business Overview

Realty Income is a retail-focused Real Estate Investment Trust that has earned a sterling reputation for its dividend growth history. Part of its appeal certainly is not only in its actual payout history, but the fact that these payouts are made monthly instead of quarterly.

Indeed, Realty Income has declared 620 consecutive monthly dividends, a track record that is unprecedented among monthly dividend stocks.

The trust owns more than 11,100 properties and has a market capitalization in excess of $44 billion. Realty Income focuses on standalone properties, rather than ones connected to a mall, for instance. That increases the flexibility of the tenant base and helps the trust diversify its customer base.

The company has increased its dividend over 114 times since its initial public offering in 1994. Realty Income is a member of the Dividend Aristocrats.

The company’s long history of dividend payments and increases is due to its high-quality business model and diversified property portfolio.

Source: Investor Presentation

In the most recent quarter, Realty Income beat analyst estimates on both revenue and FFO-per-share. Revenue increased 64% from the same quarter last year, due to property acquisitions and rent increases. Adjusted FFO-per-share increased 1.1%.

Growth Prospects

Realty Income’s growth has been quite consistent; the trust has a very long history of growing its asset base and its average rent, which have collectively driven its FFO-per-share growth. We don’t believe this has changed and thus, we see its growth capacity in the mid-single-digits annually, as it has been for many years.

Realty Income will achieve these results by simply continuing to do what it has always done.

Realty Income has reduced its exposure to lower-quality tenants. Today, 50% of its revenue comes from investment-grade tenants, and it has reduced its reliance upon restaurants, favoring convenience stores and grocery stores instead.

Source: Investor presentation

The trust’s list of tenants is a high-quality, diversified group where the highest exposure remains Walgreens Boots Alliance (WBA), one of the largest drug retailers in the world. Even then, its largest tenant is just 4.1% of total revenue.

Its top 20 tenants represent over 43% of revenue. The same is true for its geographic diversification.

This diversification, like the industry composition, helps Realty Income reduce its risk from sector downturns, and allows it to capture growth over the long term.

All of this has resulted in Realty Income’s results over time being truly outstanding. Realty Income has never had a year-end occupancy level below 96.6%, which is an unbelievable track record of consistency as this period contains the dot-com bubble, as well as the financial crisis and the recessions that followed those events. Occupancy was 98.5% by the end of 2021.

Same-store rent growth has nearly always been positive as well, meaning Realty Income is capturing more revenue on its portfolio over time. Its long-term leases also afford it relatively low annual volatility in its rent terms. This helps with capturing higher base rents, which drives organic top-line growth.

Putting all of this together, we see Realty Income producing 4% annual FFO-per-share growth over time, consistent with its recent history.

Dividend Analysis

Realty Income’s dividend history is second-to-none in the world of REITs. Its dividend has been increased over 114 times since it came public in 1994, and the payout has increased by 4.4% per year on average.

The dividend is also safe considering not only this extraordinary history of boosting the payout throughout all types of economic conditions but also because the trust pays out just over 74% of adjusted FFO.

REITs are required to pay out most of their income in the form of dividends, so Realty Income’s dividend payout ratio will never be low. We see ~80% of FFO as strong for a REIT, particularly for one that is growing FFO-per-share consistently.

That means that even if FFO-per-share were to go flat for some period of time, the dividend is still sustainable. We expect the payout to continue to rise in the low- to mid-single digits annually, as it has for so many years.

Realty Income is able to maintain this record not only because its business is fundamentally superior, but also because its capital structure is conservative.

Source: Investor Presentation

The trust has strong, investment-grade ratings on its credit. This means that the trust spends relatively less on servicing debt and while dilution has been a minor headwind over time, the formula clearly works.

It also has a net-debt-to-EBITDAre ratio of 5.3x, and a weighted average term to maturity of 7.7 years. In other words, liquidity and leverage aren’t concerns for Realty Income, adding to the allure of the stock for income investors.

Final Thoughts

REITs are favorites among dividend investors because they pay out the vast majority of their earnings to shareholders via dividends, which generally leads to high yields.

Realty Income’s 4% current yield is lower than many REITs, but that is because the trust has a track record of success that is unrivaled. This leads to investors paying a premium for the stock, driving the yield lower.

However, for income investors looking for a yield that is twice the broader market and a secure payout, Realty Income fits the bill. This is not a growth stock, but from a pure current income and dividend growth perspective, Realty Income is difficult to beat.

The valuation is a bit high at ~18.6 times this year’s expected FFO-per-share, while we assess fair value at 18 times FFO. As a result, Realty Income’s valuation could limit its total returns over the next several years. Even so, Realty Income is arguably the top monthly dividend stock in terms of business quality and dividend safety.

If you are interested in finding more high-quality dividend growth stocks suitable for long-term investment, the following Sure Dividend databases will be useful:

The major domestic stock market indices are another solid resource for finding investment ideas. Sure Dividend compiles the following stock market databases and updates them monthly:

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