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Realty Income: The Best Monthly Dividend Stock

Realty Income: The Best Monthly Dividend Stock

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Tuesday, 31 July 2018 09:57 AM Current | Bio | Archive

Income investors are accustomed to receiving dividends every three months. But there is a way to receive dividend income even more frequently. Monthly dividend stocks pay their investors once a month, instead of every three months. This allows shareholders to compound their dividends even faster than quarterly dividend payers.

Realty Income (O) is the best monthly dividend stock investors can buy. It has a long history of paying dividends and raising the dividend on a regular basis. In fact, Realty Income has trademarked itself as the “The Monthly Dividend Company.”

Realty Income has paid 576 consecutive monthly dividends—a streak of 48 years. With a current dividend yield of 4.8% and steady payouts each month, Realty Income is the top monthly dividend stock.

Business Overview & Growth Prospects

Realty Income is a Real Estate Investment Trust—or REIT—operating in the commercial real estate industry. Realty Income owns more than 5,300 properties, primarily leased to retail tenants, which include dollar stores, pharmacies, movie theatres, and fitness clubs. Its top tenants are Walgreens, FedEx, Dollar General, LA Fitness, 7-Eleven, Dollar Tree, AMC Theaters, and Walmart. These top tenants have strong brands and durable competitive advantages that protect their business models.

Realty Income has a strong portfolio, with high occupancy and steady cash flow growth. In the 2018 first quarter, occupancy rose above 98%, the highest rate in the past decade. Total revenue increased 7% for the quarter, due to higher occupancy and cash flow contributed by new properties. Adjusted funds from operation (AFFO) increased 4%. Funds from operation is a better metric to evaluate cash flow for REITs than earnings-per-share, since non-cash charges like depreciation are considerable items for REITs.

Going forward, Realty Income will continue to acquire new properties to generate growth. During the first quarter, Realty Income invested $510 million in 174 new properties and properties under development. In addition, the company can raise rents periodically to increase cash flow. Realty Income focuses on long-term leases usually 10 years or longer, with contractual rent increases. In the most recent quarter, rents on 4,747 properties under lease increased 1% from the same quarter last year. For 2018, Realty Income management expects adjusted FFO of $3.14 to $3.20 per share, which would represent 3%-4% growth at the midpoint of guidance.

Dividends & Expected Returns

On July 17, Realty Income raised its monthly dividend to $0.22 per share, which equals an annual payout of $2.64 per share. Realty Income has a current dividend yield of 4.8%, which is more than double the average yield of the S&P 500 Index. High yields are common for REITs, as they are required to distribute 90% of their taxable income to shareholders annually, in the form of dividends. In return, REITs typically do not pay corporate taxes.

A strong business model with high-quality properties, along with a favorable tax structure, have fueled Realty Income’s impressive dividend history. The company has paid a dividend each month for 48 years. It has also raised its dividend 97 times since its initial public offering in 1994. And, it has increased the dividend for 82 quarters in a row.

At the current valuation, Realty Income stock trades for a price-to-FFO ratio of approximately 17-18 using 2018 AFFO guidance. The stock seems to be fairly valued but could generate strong returns through FFO growth and dividends. Assuming 5% annual FFO growth, in addition to the 4.8% dividend yield, Realty Income could generate total returns of nearly 10% per year. This would be a satisfactory rate of return for a high-quality company with a rock-solid dividend.

Ben Reynolds is CEO of Sure Dividend. Sure Dividend helps individual investors build high quality dividend growth stock portfolios for the long run.
 

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BenReynolds
Realty Income (O) is the best monthly dividend stock investors can buy. It has a long history of paying dividends and raising the dividend on a regular basis. In fact, Realty Income has trademarked itself as the “The Monthly Dividend Company”.
realty, income, best, monthly, dividend, stock
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2018-57-31
Tuesday, 31 July 2018 09:57 AM
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