Yesterday, Realty Income (O) announced an increase in its monthly cash dividend. The company declared a cash dividend of $0.2205 per share, up from the last paid dividend of $0.22.
With this increase, the real estate company’s annual dividend increased to $2.646 per share from the current level of $2.64. The latest hike marks the company’s 98th dividend increase. With this increase, the stock’s compound average annual dividend growth rate sits at ~4.7% since its listing on the New York Stock Exchange in 1994.
At current market prices, Realty Income’s dividend yield is 4.6%, which is one of the highest in the retail REIT (real estate investment trust) space. Top competitors Simon Property (SPG), Kimco Realty (KIM), and National Retail Properties (NNN) have yields of 4.4%, 6.6%, and 4.4%, respectively.
Realty Income has maintained its dividend payout ratio (dividend payment as a percentage of average funds from operations, or AFFO) above 80% for the last several years. However, as the company has been able to generate higher AFFO every year, its dividend payout in dollar terms has increased robustly. The company’s annual cash dividend payout reached $2.527 per share in 2017 from $1.746 in 2011.
Diversified tenant base
Realty Income’s well-diversified tenant base has helped in sustaining its growth momentum even in the current challenging retail environment where most of the competitors are struggling to cope with dwindling mall traffic amid a shift of consumers toward online channels. The company has the largest exposure in the retail industry, which contributes ~81% to its total rental income.
However, its retail tenants mainly consist of non-discretionary retailers and service providers like dollar stores, convenience stores, quick service restaurants, drug stores, health/fitness facilities, and theaters. These businesses are less vulnerable to economic recession as well and face the least competition from e-commerce, which helps keep occupancy rates higher. The company’s occupancy rate of 98.7% for the second quarter of 2018 marked an improvement of 20 basis points YoY and ten basis points sequentially.
Realty Income makes up ~14.2% of the Pacer Benchmark Retail Real Estate SCTR ETF (RTL).