Realty Income: A Monthly Preferred Yielding 6.5%

| About: Realty Income (O)

Realty Income Corp. (O) has affectionately named itself The Monthly Dividend Company. As can be found on the company's website, O owns over 2,600 properties in all but one of the United States with strong industry and geographic diversification. O has paid monthly dividends for forty-three years with a consistently growing payout. In fact the payout has grown by 88% since 1995. At the current annual dividend rate of $1.75 per share, O will pay out over $230 million in common dividends this year. That's the good news for the common stock. The growth in dividends has slowed. Although O has been able to continue to raise the dividend every year, the total increase has been only 2.9% since 2008. The current yield on the common is 4.5%.

Realty Income also has a preferred issue, series E. This security also pays a monthly dividend (somewhat less common for a preferred) of $0.1406 per share or $1.6872 annually. At the current price (at the time of this writing) of $25.56 that works out to an annual yield of 6.6%, a full 2 percentage points higher than the slowing growing common. The security trades within a fairly small range of $24.27 (during the August meltdown) to $25.96. As with all preferred issues there is some interest rate risk. When rates start to go higher, preferred issues tend to lag as their dividend is fixed. O Preferred is trading just over 2% above par but with 4 monthly dividend payments the redemption risk is eliminated.

There are only 13.9 million preferred shared issued against over 133 million common shares issued and outstanding. In order for the preferred dividend to be at risk, the common dividend would have to be suspended, which has a very small chance of occurring, given that Realty Income is a REIT and exists for the purpose of generating dividends for holders of the common stock.

I would probably wait for a small drop in price to the $25.15 range before initiating or adding to a position. That being said, the difference in yield between the current price and $25.15 is only 0.1%. Given the lack to volatility in the issue, someone looking for immediate income would likely not suffer investing at today's price.

Disclosure: I am long O preferred shares.