Realty Income Corporation O recently announced its 104th common stock monthly dividend hike, since the company’s NYSE listing in 1994. The company will now pay 22.75 cents per share compared with the 22.70 cents paid earlier.
The increased dividend will be paid on Jan 15, to shareholders on record as of Jan 2, 2020. The latest dividend rate marks an annualized amount of $2.73 per share versus the prior rate of $2.724 per share. Based on the company’s share price of $75.61 on Dec 10, it results in a dividend yield of around 3.61%.
Solid dividend payouts are the biggest enticement for REIT investors and Realty Income remains committed to boosting shareholder 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 594 consecutive monthly dividend payments throughout its 50-year operating history. Moreover, the company has made 89 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.
Moreover, the company continues to maintain a conservative capital structure. It has modest leverage, robust liquidity, and continued access to attractively-priced equity and debt capital. The company’s $3.25-billion unsecured credit facility comprises a $3-billion revolving credit facility and a $250-million term loan. The revolving credit facility also has a $1-billion expansion feature and an August 2019 amendment to the credit facility allows for borrowings under the revolving credit facility in up to 14 currencies, including U.S. Dollars. Realty Income ended the third quarter with full availability on this $3-billion revolving credit facility, $236 million of cash on hand, and a net debt-to-EBITDA ratio of 5.0x. It also has well-laddered debt maturity schedule.
Notably, the retail real estate market has not been in the pink of health as issues like shift of consumers toward online channels, dwindling mall traffic, store closures and bankruptcy of retailers have been making headlines and kept retail REITs on tenterhooks. These have resulted in turbulence in the retail real estate market, forcing structural changes. Even the likes of Simon Property Group, Inc. SPG, Kimco Realty Corporation KIM and Macerich Company MAC were not immune and have made aggressive attempts to adapt to the changing scenario.
However, Realty Income has been able to differentiate itself by deriving majority 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, as well as competition from Internet retailing. Accretive acquisitions and solid balance-sheet strength augur well for long-term growth. However, the retail apocalypse will likely be a hurdle, and with substantial single-tenant assets in its portfolio, the company is considerably exposed to tenant default risk.
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 19.9%, the industry has gained 15.7% during this period. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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