How Realty Income Corporation Paid Out $3 Billion of Dividends

Realty Income recently announced it has paid $3 billion in dividends to its investors. But there is one thing that has allowed it to do so that often goes unnoticed.

Jun 17, 2014 at 2:22PM

This week, Realty Income (NYSE:O) announced it had surpassed the $3 billion mark in total dividends returned to shareholders. And there's one essential way it has managed to raise its dividend for 66 quarters in a row that often goes undiscussed.

The massive dividend payouts
In the announcement of passing $3 billion in dividends, the CEO of Realty Income said:

We are pleased with the company's consistent performance that has allowed us to pay over $3 billion in monthly dividends to our shareholders...we remain committed to operating our company in a manner that supports the payment of monthly dividends to our shareholders.

And a simple glance at how its dividend has risen over the last 20 years shows the remarkable growth:

Source: Company Investor Relations.

How it does so
So how has it so steadily risen its dividend through the years? Many people know one way is through acquisitions, as its real estate assets have ballooned from $339 million in 1994 to $9.3 billion at the end of March. The biggest jump came just last year when it acquired nearly 975 properties worth $4.7 billion: 

Source: S&P CapIQ.

But it turns out there's another way it boosts its dividend. The company's latest annual report noted plainly: 

We seek to increase distributions to stockholders and funds from operations, or FFO, per share through both active portfolio management and the acquisition of additional properties.

Acquisition of additional properties is easy to spot and understand. But active portfolio management is a bit more of a mystery. So let's examine what that means.

Active portfolio management
The portfolio management department of Realty Income is run by Richard Collins, who has been with the firm since 1990 and previously headed up the acquisitions group. So he knows a thing or two about seeking to increase the FFO that dividends are paid from. 

But what exactly does that portfolio management do? Let's check back in the annual report:

  • Contractual rent increases on existing leases;
  • Rent increases at the termination of existing leases, when market conditions permit; and
  • The active management of our property portfolio, including releasing vacant properties, and selectively selling properties, thereby mitigating our exposure to certain tenants and markets.

While it may be less glamorous than headline grabbing property acquisitions, portfolio management is the critical business function of a REIT to ensure properties are well maintained and continue to deliver topline results.

It examines both the broader performance of industries in which its tenants operate -- 47 separate ones at last count -- and it also monitors "the operation, management, business planning, and financial condition," of the individual tenants themselves.

Although the numbers aren't as large -- it expects $50 million in proceeds this year -- it also sells the assets Realty Income no longer needs. It will in turn use the money generated to invest in other properties that will likely yield higher returns, but also help eliminate the risks of become too concentrated in particular areas or industries.

The key takeaway
There's a lot to like about Realty Income, but a critical part of investing is understanding not only the glamorous aspects of a business -- like big acquisitions for REITs -- but all parts of it. And when you consider how well Realty Income has operated through the years, there's no doubt that while it may not be pretty, its portfolio management function has been one key to its success.

Are REITs the top dividend stocks for the next decade?
Dividends like those offered by Realty Income can be great things, as the smartest investors know dividend stocks simply crush their non-dividend paying counterparts over the long term. They also know that a well-constructed dividend portfolio creates wealth steadily, while still allowing you to sleep like a baby. Knowing how valuable such a portfolio might be, our top analysts put together a report on a group of high-yielding stocks that should be in any income investor's portfolio. To see our free report on these stocks, just click here now.

Patrick Morris owns shares of Realty Income.. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

Click here to learn about this incredible technology before Buffett stops being scared and starts buying!

David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

©1995-2014 The Motley Fool. All rights reserved. | Privacy/Legal Information

Compare Brokers