Is This Real Estate Investment The Real Deal?

This monthly-dividend stock is invested in over 6,500 properties, is offering one of its highest yields, and is available at a discount right now

Realty Income (NYSE: O) is a triple-net lease real estate investment trust, which means it puts all the responsibility of taxes, maintenance, and insurance on the leasees. It was founded in 1969 by married couple William and Evelyn Clark and made its first acquisition of a Taco Bell restaurant in 1970. The company went public in 1994 and today rents to corporations like Walgreens (NASDAQ: WBA), 7-11, and Dollar General (NYSE: DG). 

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How are its financials?  

The Monthly Dividend Company(tm) (actually trademarked by Realty Income) has had considerable net income growth in the last decade, growing over 300% to $436 million in 2019. The clients mentioned above are essential companies during the pandemic, but Realty Income also rents out to fitness clubs, cinemas, restaurants, and child-care facilities as well and that’s where the company took a hit; it collected only 83% of all rents billed in April. Even before this was announced, however, the company had already lost 12.5% in stock price ($62.21 as of June 5) since the start of the year along with many others during the panic sell-off earlier in March. This price drop has boosted the company’s dividend yield to 5.1% from 3.7% for its next payout of $0.23 on June 15. 

Since going public, the dividend aristocrat has raised its dividend 106 times for a compound average annual return of 14.5% and a compound annualized dividend growth of 4.5%. One of the tenets guiding the corporation is to finance its properties without the use of debt and this helps the company earn good investment spreads. Another rule it adheres to is purchasing properties in high-traffic, highly-desirable areas that attract tenants with higher credit ratings and cash flows. This shields it from defaults and business failures as the properties shouldn’t be difficult to re-lot; this has kept its occupancy rate at over 96% for the last decade.

How is this stock protected? 

With its diverse portfolio of over 6,500 properties, Realty Income is reasonably guarded from economic fluctuations brought on by disasters, pandemics, and market panics unlike other REITs like Retail Properties of America (NYSE: RPAI) and Urban Edge Properties (NYSE: UE) who only received 50%-56% of their April rent payments. In fact, since it has been public for over 25 years, it has survived 9/11, the dot-com bubble, and the Great Recession; this further solidifies the strength of the company compared with other REITs like Store Capital (NYSE: STOR), which is six years old and has only operated in positive market conditions. To minimize risk, Realty Income mainly leases to tenants that have a service, non-discretionary, and/or low price point component to their business; these companies are better positioned to survive varying economic conditions and the persistent rise of e-commerce.

How is it performing this year? 

The company did just fine in Q1 reporting revenue of $414 million and net income of $0.44 per share: up 16% from the same quarter last year and up $0.07 from the year prior. Realty Income had $1.2 billion cash at the end of the quarter and another $1.1 billion for use on its line of credit (it has an A-rating from Standard & Poor’s) so it’s considerably safe during the pandemic. Just as a precaution, however, the company withdrew guidance for the rest of the year. It then began expanding into Europe last year with property purchases for $798 million in the U.K. This is a bright spot on a shining organization as its growth potential has yet to be fully realized at home and abroad.

MyWallSt operates a full disclosure policy. MyWallSt staff currently hold long positions in companies mentioned above. Read our full disclosure policy here.