Realty Income: A Wide-Moat REIT With Dividends

TheStreet.com

NEW YORK (TheStreet) -- In the publicly traded REIT industry, there are more than 140 equity REITs and they are all defined by one primary attribute: Paying dividends.

After all, REITs are one of the few investment alternatives where the shareholder gets paid based on a contractual arrangement in which companies must payout at least 90% of earnings. It is because of the forced dividend-payout component that REITs have become such an attractively reliable fixed-income choice.

Earlier this week, I wrote an article on Triple-Net REIT investing, explaining some of the broad options available in REIT-dom. As I said:

"The options for investing in Triple-Net REITs are getting better and better. When selecting a Triple-Net REIT, it's important to consider the company's industry, its current competitive position within that industry and the "economic moat" around the company; that is, a sustainable competitive advantage that helps preserve long-term pricing power and profitability."

So how can an investor find the best Triple-Net REIT? The one that provides the widest economic moat? The one that pays the most sustainable dividends and perhaps is even a leader in the overall REIT sector?

To answer that question, let's go to this book, The 22 Immutable Laws of Marketing by Al Reis and Jack Trout. In the book, the coauthors explain that to gain leadership in a certain category, it's important to dominate that business in a concept called "differentiation." Accordingly, by tackling a specific market niche, a company can extend a much wider moat for long-term performance.

The Monthly Dividend Company

Realty Income , The Monthly Dividend Company, is a New York Stock Exchange-listed real estate firm dedicated to one simple, but most important, thing: Providing shareholders with dependable monthly income.

The Encendido-based company has declared 514 consecutive common stock monthly dividends throughout its 44-year operating history and increased the dividend 71 times since Realty Income's listing on the New York Stock Exchange in 1994.

Earlier this week, Realty Income shares hit an all-time high of $47.98 (on April 15); the current dividend yield is around 4.6%. As the largest Triple-Net REIT in the sector, Realty Income has a market capitalization of around $9.3 billion -- making the REIT a potential candidate for the S&P 500.

Another differentiator for Realty Income is the fact that the company is one of just a handful of REITs that increased dividends during the Great Recession. In fact, Realty Income has never cut its dividend; the company has paid and increased dividends for more than 19 years. Next year, Realty Income will also be a candidate for the exclusive S&P Dividend Aristocrat classification (with 20 years in a row of paid and increased dividends).


In Realty Income's 2012 Annual Report, Lewis explains the driving force of "The Monthly Dividend Company":

"As always, we do what we do, so we can all continue to enjoy monthly dividends. This is not just a mission, but a passion for all of us who work at Realty Income."

Lewis adds:

"For our part, we will continue to work hard to provide you with monthly dividends that increase over time."

That's music to my ears ... and that's why Oh-Oh-"O," it's magic ... and that helps me sleep well at night.

Realty Income: The Monthly Dividend Company

At the time of publication the author had no position in any of the stocks mentioned.

This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.

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