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Every Dividend Hike Matters at Realty Income

By Rick Munarriz - Dec 9, 2020 at 11:55AM

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It's more than just the 109th payout increase since 1994 for the retail-oriented REIT.

You're not going to see a lot of news coverage for most payout increases, and that is particularly true when it comes to Realty Income ( O -2.94% ). The real estate investment trust (REIT) with a penchant for retail properties is only boosting its monthly cash dividend per share to $0.2345 from $0.234. It's a modest 0.2% increase.

Hikes are also old hat for Realty Income. It's now come through with 109 dividend boosts since its exchange listing in 1994. Realty Income is unique in that it makes small monthly distributions instead of larger payments quarterly, but the math is still impressive. We're talking about an average of a little more than four hikes in any given year. The story gets even better as you take a closer look.

A sales rack at a clothing store offering an 80% off sale.

Image source: Getty Images.

Mauled at the mall

Tuesday afternoon's payout boost at Realty Income may seem more like a short walk than -- pardon the pun -- a hike. The yield based on Tuesday's close merely went from 4.65% to 4.66%. However, it's still refreshing to see any kind of increase for a company specializing in retail properties. 

We're in a pandemic. We're in a recession. We're also in a broader fundamental shift away from brick-and-mortar retail to e-commerce and other digital solutions. Does it make sense to be investing in local establishments when warehouses worldwide are a click or tap away? 

Realty Income knows how to read a room. It knows that weaker retail chains are buckling. It's diversified with about 600 tenants across more than 50 different industries, and its emphasis in signing long-term leases is identifying retail areas that are immune to both the economic setbacks as well as the e-tail challenge. It has 95% of its retail portfolio tackling concepts that address services, non-discretionary retail, or low price points. Its largest category consists of convenience store operators. Pharmacies and discounters are also well represented here, even if drugstores are really no longer immune to the e-commerce threat.   

There are some potential blowups here. Realty Income does have gym operators and movie theater operators on its roster. Those industries have suffered in 2020, and the long-term outlook isn't as rosy heading out of the COVID-19 crisis as it was before the global pandemic happened. Realty Income has earned the benefit of the doubt. It has its pulse on market trends, and it has in the past found ways to overcome bad bets within an otherwise sound portfolio. 

Realty Income is one of just three REITS that are considered Dividend Aristocrats, coming through with dividend hikes in each of the past 25 years. Realty Income's streak is even better than its fellow aristocrats, having come through with 93 consecutive quarterly payout increases. It has weathered economic lulls, online migration, and now a generational pandemic. It knows how you shop, and if you're an income investor it knows what you expect to happen.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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$65.92 (-2.94%) $-2.00

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