Is Realty Income’s (O) 113th Monthly Dividend Hike Sustainable?

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Realty Income Corporation O recently announced its 113th common stock monthly dividend hike since the company’s NYSE listing in 1994. The company will pay 24.6 cents per share in dividend compared with the 23.6 cents paid earlier, denoting a 5.1% hike compared to the same month in 2020.
The increased dividend will be paid on Dec 15, to shareholders on record as of Dec 1, 2021. The latest dividend rate marks an annualized amount of $2.952 per share versus the prior rate of $2.832. Based on the company’s share price of $71.41 on Nov 16, it results in a dividend yield of 4.13%.
Solid dividend payouts are the biggest enticement for the REIT investors and Realty Income is committed to boosting shareholder wealth. This retail REIT enjoys a trademark of the phrase “The Monthly Dividend Company.”
The latest hike comes by a marginal figure from the prior dividend paid, but the December dividend payment marks the company’s 617th consecutive monthly dividend payment in its 52-year operating history. O has made 96 consecutive quarterly dividend hikes. The retail REIT has witnessed compound average annual dividend growth of 4.5% since its listing on the NYSE.
The latest hike reflects Realty Income’s ability to generate decent cash-flow growth through its operating platform and a high-quality portfolio. Realty Income announced the closing of the merger with VEREIT on Nov 1. The combined entity is poised to benefit from the enhanced size, scale, diversification and synergies. Also, Realty Income has announced the completion of the spin-off of Orion Office REIT Inc. ONL.
According to Sumit Roy, president and the chief executive officer of Realty Income, „Following the closing of our recent merger, our continued operational success and favorable outlook has allowed us to increase the dividend for the 113th time since our company’s public listing in 1994.“
With the current cash-flow growth rate of 4.33%, as against the industry’s average of a negative 21.22%, the increased dividend is likely to be sustainable.
Realty Income derives 95% of its annualized retail contractual rental revenues from the tenants with a service, non-discretionary and/or low-price-point component to their business. Such businesses are less susceptible to economic recessions and competition from Internet retailing. This boosts the stability of rental revenues and generates predictable cash flows.
Realty Income exited third-quarter 2021 with a cash balance of $517.0 million. The company has a $3.0 billion unsecured revolving credit facility and as of Sep 30, 2021, there were no borrowings on its revolving credit facility. The company ended the quarter with modest leverage and strong coverage metrics. Further, Realty Income has a credit rating of A- and A3 from Standard & Poor’s and Moody’s, respectively, enabling it to procure debt financing at attractive costs.
Shares of Zacks Rank #3 (Hold) O have gained 9.1% in the past six months compared with the industry’s rally of 6.9%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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Stocks to Consider

Simon Property Group SPG holds a Zacks Rank of 2, at present and its projected long-term growth rate is 8.70%.
The Zacks Consensus Estimate for Simon Property’s 2021 FFO per share has been revised marginally upward in a week.
Federal Realty Investment Trust’s FRT Zacks Consensus Estimate for the ongoing-year FFO per share has moved 1.5% north to $5.32 over the past week.
Currently, Federal Realty carries a Zacks Rank of 2.
Note: Anything related to earnings presented in this write-up represents funds from operations (FFO) — a widely used metric to gauge the performance of REITs.

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Simon Property Group, Inc. (SPG): Free Stock Analysis Report
 
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