Monday, January 28, 2013

Realty Income (O) Raises Dividends by a Record 19.20%

Realty Income Corporation engages in the acquisition and ownership of commercial retail real estate properties in the United States. This dividend achiever has paid dividends every year since going public in 1994, and raised them for 19 years in a row.

The company raised its monthly dividend by 19.20% to 18.09 cents/share following the completion of the acquisition on American Realty Capital Trust. This was the highest increase in distributions done by the monthly dividend company. The new annual dividend at the current rate is at $2.171/share. The current yield is up to 5% after the increase. Check my previous analysis of the REIT for more information on Realty Income.

The REIT cites increase in revenues and profitability as a result of 2012 property purchases as well as the recently completed acquisition of American Realty Capital Trust. Realty Income expects Normalized FFO/share to range between $2.32 - $2.38/share in 2013. In comparison, Normalized FFO/share for 2012 is estimated to be between $2 - $2.04/share. The new monthly dividend brings the FFO payout ratio to a range between 91% - 93%, which is high. This might limit future distribution growth for the next few years.

As a result of the merger, Realty Income has added 515 properties, which are under a triple-net lease. This brings the total number of properties owned by Realty Income to 3,528. In addition, the acquisition is increasing the proportion of lease revenue derived by investment grade lessors from 19% to 34%. The average lease term is approximately 11 years. A triple-net lease is typically a long-term contract ranging anywhere between 15 and 20 years, which specifies the rent due, periodic increases in rents. The tenants are usually responsible for most operating expenses for these properties, including taxes and utilities, in addition to paying rent to Realty Income.

Realty Income was one of the few Real Estate Investment Trusts which didn't cut or eliminate distributions during the financial crisis of 2007 – 2009. In fact, the company kept raising them a few times per year, albeit at a very slow rate. I find the current increase to leave little to no room for dividend increases for the next few years above maybe a couple cents/share. That being said however, I like the fact that the company is looking for different ways to only pay the monthly dividend to loyal shareholders, but also to find new ways to generate cash-flow to hike it regularly.

Full Disclosure: Long O

Relevant Articles:

Realty Income (O) – The Monthly Dividend Company
Nine Income Stocks Delivering Dividend Increases to shareholders
Dividend Achievers Offer Income Growth and Capital Appreciation
Four High Yield REITs for current income

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