Realty Income (NYSE:O) offers income investors everything they could want: a convincing growth record both in terms of portfolio and dividends, monthly distributions, a well-managed portfolio, a focus on shareholders, and a great dividend yield. Realty Income's performance record is so impressive that the stock could serve as a cornerstone investment in every income investor's portfolio.
With a dividend yield exceeding 5%, Realty Income might also just be the right choice for investors who value recurring cash flow more than anything else. Let's find out why Realty Income stands out from the crowd.
Fantastic portfolio growth record
Investors like nothing more than growth. A growing business certainly indicates that company management is on to something, and increasing shareholder distributions are the most obvious signs of success.
Realty Income certainly doesn't have to hide when its portfolio growth and dividend records are put under the microscope. As impressive as Realty Income's past accomplishments have been, it is also important to put Realty Income's growth record into context.
The following chart shows Realty Income's portfolio growth since the company went public in 1994, 20 years ago. Its portfolio has gained tremendously in size, a sign of a healthily growing business, and the REIT managed to grow its portfolio even during the most devastating financial crisis since the Great Depression.
And there are no signs that growth is subsiding: At the end of the second quarter, Realty Income reported total properties of 4,263. From 1994 to the second quarter of 2014, Realty Income has grown its property portfolio, in terms of size, by a massive 577%.
While this accomplishment in itself is impressive, it also has a more profound implication: Realty Income has been able to grow its business, and reward shareholders, in varying economic climates. No matter whether interest rates were high (like at the end of the 1990s or early 2000s) or low (after 2008), Realty Income's portfolio grew in any environment.
This track record is of extraordinary value for investors or retirees who rely on steady income to fund their lifestyle and require their cash flow to trickle in independent of the state of the overall economy. Realty Income has accomplished just that, and chances are it will in the future, too.
Outstanding shareholder remuneration
First of all, Realty Income pays its dividends to investors on a monthly basis, which has even more value to shareholders than a quarterly payment schedule. A high payment frequency allows shareholders to gain access to more reinvestment opportunities, which has a lot of value in periods of market volatility.
Second, Realty Income's dividends have increased throughout the financial crisis, a time in which many other companies adjusted their payouts to shareholders to account for the lower profitability realities on the ground.
Realty Income, on the other hand, increased its annual distributions per share from $1.70 in 2008 to $1.82 in 2012. Though its dividend growth rate slowed during the financial crisis, Realty Income's dividend record goes to show that company management remains committed to remunerating shareholders and to delivering a dependable dividend stream.
When it comes to investing in REITs, it's paramount to look at key portfolio metrics such as a company's occupancy rate to determine whether the business is indeed managing its properties properly.
From an occupancy point of view, there is very little room for Realty Income to improve: The REIT presented investors with consistently high occupancy rates for its portfolio in the past, and its second-quarter portfolio occupancy was reported at a whopping 98.3%.
High occupancy rates signal that tenants like the quality of the properties and are satisfied with the company's property management. They also suggest positive same-store rental growth in the future and, potentially, property price appreciation.
The Foolish takeaway
Realty Income is a quality choice in the REIT sector that convinces with consistent portfolio and dividend growth throughout periods of extraordinary stress in the economy. Its shareholder focus, monthly payment schedule, and outstanding occupancy rate for its property portfolio only add to the appeal of Realty Income as a core income investment.
With a dividend yield of around 5%, Realty Income is indeed making a more than solid value proposition for income investors of all ages, no matter how the economy will be doing.
Kingkarn Amjaroen 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 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.