Realty Income (O 1.94%) fits the description of the slow-but-steady race-winning tortoise to a tee. The company has raised its dividend, paid monthly, for 29 consecutive years, which spans the COVID-19 crisis, the Great Recession, and the dot-com bust. Here's what makes this real estate investment trust (REIT) so special.
Sticking to its strategy and still growing
As a triple-net-lease REIT, Realty Income engages in sale-leaseback deals. The company buys commercial real estate from businesses, and those properties are subsequently leased back to those same sellers with lengthy lease terms and annual rent escalators.
This allows a business to tap into equity it has in its properties. That capital can then be used however the company sees fit, such as for debt repayment or expansion.
With a portfolio of nearly 12,500 properties in all 50 states and Puerto Rico, Spain, the United Kingdom, and Italy, Realty Income is unmatched as a retail-focused REIT. As of last month, the company's $40-billion-plus market capitalization made the fourth biggest REIT in the world.
Besides the initial year of the pandemic in 2020, the REIT has expanded its portfolio of properties by just the high-single-digit to low-double-digit percentages. This is made possible by a net lease commercial real estate market in the United States and Europe worth an estimated $13 trillion.
Annual growth in adjusted funds from operations (AFFO) per share has accelerated in recent years: Since 2012, AFFO per share has had a 6.6% compound annual growth rate (CAGR). That is markedly higher than the 5% CAGR in AFFO per share dating back to 1995.
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A generous yet conservative payout
Realty Income's 4.9% dividend yield is nearly triple the S&P 500 index's 1.7% yield. And with the monthly payout increasing by 4.4% each year since 1994, the dividend growth prospects aren't shabby, either.
Realty Income's dividend payout ratio was also manageable in 2022, at 75.7%. This gives the company the funds to acquire more properties, which should power annual growth in AFFO per share in the mid single digits, with similar dividend growth in the future.
The stock is currently a solid value
Realty Income appears to be a buy for long-term investors at the current $62 share price. The stock's forward ratio of price to AFFO per share is just 15.7, which is a bargain for a world-class business, in my opinion. And if income investors need any more convincing, the stock's trailing-12-month (TTM) dividend yield of 4.7% is a tad above its 10-year TTM median dividend yield.
