Realty Income (O), the “Monthly Dividend Company”, is an S&P 500 company and a Dividend Aristocrat. Structured as a REIT, the company’s monthly dividends are supported by the cash flows from over 11,700 real estate properties owned under long-term net lease agreements.
Since going public in 1994, Realty Income has increased its yield 118 times, and in its 53-year operating history, the company has declared 630 consecutive common stock monthly dividends.
Realty Income’s Size Will Fuel Its Dividend
Although big is not always better, size is a competitive advantage in the REIT world. The diversification of its properties translates to a predictable dividend yield, which currently sits at an attractive 4.6%.
In addition to trademarking the phrase “The Monthly Dividend Company,” Realty Income is part of the Dividend Aristocrat club. For 27 consecutive years, the REIT has raised its dividend and is positioned to continue this trend.
Why Buy Realty Income Now?
Economists believe there is a 70% chance of a recession in 2023, but Realty Income has an edge. While many companies will struggle with rising interest rates and the impact of record-high inflation, Realty Income is set up to do well in tumultuous markets. The REIT focuses on leasing to businesses largely insensitive to economic cycles.
Realty Income develops triple-net leases, which means most operating costs fall on the tenants, including insurance, taxes, and maintenance. And because these leases are often long-term, Realty Income favors durable, highly defensive businesses with investment-grade credit ratings.
With typical tenants being drug stores, dollar stores, and convenience stores, these businesses continue to do well, regardless of what’s going on in the economy. Some of this REIT’s diverse client list includes 7-Eleven, Walgreens, and Dollar General.
Even during the COVID pandemic’s lockdown periods, most of Realty Income’s tenants remained open as essential businesses. And while other REITs cut their dividends during this period, Realty Income raised its monthly dividend three times in 2020 alone.
As you look ahead, the big selling point is that Realty Income’s tenants sell consumer non-discretionary items. In a struggling economy, consumers will avoid expensive items but will still buy necessary and inexpensive everyday products.
With a market cap of $40 billion, Realty Income is around twice the size of its closest peers. Combining that with the REIT’s balance sheet, it’s tough to ignore the value of this stock.
Analysts have pegged fair value at close to $70 per share, representing around 15% upside from current levels, but realistically you’re in Realty Income for the ongoing passive income.