Shares of Realty Income (NYSE: O) hit a 52-week high on Monday. Let's take a look at how it got there and see if clear skies are still in the forecast.

How it got here
There's nothing quite like the joys and perils of investing in real estate investment trusts.

Realty Income is an acquirer of properties in the U.S. After purchasing properties it turns around and leases them out, generally in long-term contracts, and collects the profit while divvying out 90% or more of its funds from operation to shareholders. If it sounds boring that's because it basically is, but the business is highly profitable if the economy is growing.

The risk for Realty Income, like most REITs, is maintaining prudent amounts of leverage. When property prices collapsed from the recession and vacancy rates spiked, highly levered REITs were crushed, just like General Growth Properties (NYSE: GGP), which declared bankruptcy during the height of the crisis.

What's pushed Realty Income higher is a mixture of its conservative use of leverage to make purchases, the fact that its average lease contract among its 137 tenants is 11.1 years, which provides ample cash flow stability, and the fact that it has raised its dividend for a ridiculous 59 consecutive quarters! Keep in mind that although Realty Income raises its dividend quarterly, it pays out its dividends monthly.

Another key to Realty Income's success is its tenant diversity. Realty Income's top 15 tenants made up 49.4% of total revenue as of March 2012 with these businesses ranging from movie theaters to supermarkets and drugstores to distilleries. Privately held movie-theater operator AMC Entertainment and spirits producer and distributor Diageo (NYSE: DEO) are its two largest tenants.

How it stacks up
Let's see how Realty Income stacks up next to its peers.

Under normal circumstances, I would put up a table to compare the financial metrics of Realty Income against its peers (in this case Kimco Realty (NYSE: KIM) and National Retail Properties (NYSE: NNN)), but I'm not going to do that this time. The reason is that they're all very similar in that they're notorious for issuing shares to boost available cash for property purchases and all three pay out similar yields (4.2% for Realty Income, 4% for Kimco, and 5.4% for National Retail Properties). Instead, let's take a quick look at each stock's intangibles.

One factor that gives Realty Income an edge is its quality of customers. As I mentioned earlier, a diverse portfolio and long lease terms translate into guaranteed cash flow. Unfortunately, the same can't be said for National Retail Properties. Some of National Retail's prominent customers include the now-defunct Borders; the struggling Best Buy, which is planning to close 50 of its larger stores; and OfficeMax, which has closed 45 stores in two years.

Kimco Realty leases to more than 8,000 retailers, but it does so primarily through joint ventures -- something Realty Income has largely avoided. Joint ventures can reduce Kimco's debt obligations, but they also introduce far more uncertainty into what could happen to Kimco if the retail market turns south again.

What's next
Now for the $64,000 question: What's next for Realty Income? That depends on whether or not retail sales remain strong for Realty Income's primary tenants, and whether it can continue to use its cash on hand prudently while utilizing a reasonable amount of leverage.

Our very own CAPS community gives the company a two-star rating (out of five), with 82% of members expecting it to outperform. I have yet to personally make a CAPScall on Realty Income, and it'll be a bit longer before I'm ready for that type of commitment.

In my opinion, Realty Income is the best of breed in retail REITs, but it's also had a huge run over the past few weeks as investor uncertainty has spiked. It may not have the highest dividend in the space, but at a 4.2% yield, it has what I feel is the most manageable and safest dividend of the group. I'd like to make the company an outperform pick, especially considering its long-term contracts, but I'm apt to wait for a pullback first before committing.

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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.