Update: Realty Income's 4% Dividend Increase And Its Validation Of Holding Without Selling For Capital Gains

| About: Realty Income (O)

Summary

On 1/17/17 Realty Income Raised Its Monthly Dividend Payment 4%.

Although O Dividend Increases are Common The 4% Bump Is Unusually Large.

The Size Of This Increase Is Further Validation For Holding O & Not Pursuing Capital Gains.

As Postulated In My Recent O Article Dividend Income Investors Will Gain More By Holding O Than Chasing Capital Gains.

Even When Its Valuation Is High, The Continuous Increases & Monthly Payout Compounding Make O Core Buy & Hold.

The 1/17/17 Realty Income Dividend Increase.

On 1/17/17, Realty Income Inc. (NYSE:O) increased its Dividend, which is paid monthly, by 4% from $.2025 to $.2105. The annual rate previous to this increase was $2.43 and will now rise to $2.526. The new dividend is Payable on February 15, 2017, for shareholders of record on February 1, 2017. The ex-dividend date is January 30, 2017, which means buyers of O by the close of business on January 29, 2017 will receive the new higher dividend. As I write this (1/19/2017) O is trading at $59.08 so the Yield On Cost (YOC) for new buyers is presently 4.27%. See the entire O Dividend statement here.

While this dividend increase was not an unheard-of-surprise, O has occasionally had like increases in its recent history, O usually raises the monthly dividend in much smaller increments several times per year. These incremental increases generally total 4-6% annually. Prospective investors will note in the O dividend increase statement referenced above, that this dividend increase makes the total dividend increase for the last twelve months 6% or right on the high end of the dividend growth for the stock in recent years.

The Effect On The Outlook For O.

O is off to a flying start for 2017 on the dividend front, with this dividend increase. One must remember that O bills itself as, "The Monthly Dividend Company," so that the compounding effect of its monthly dividend payout are magnified for those dividend income investors who reinvest their dividends in additional shares.

This dividend increase and especially its size validates my recent article that argues that chasing capital gains in this name is foolish. While the dividend income investor who pursues a sale or "take some money off the table" strategy is waiting for their "re-entry" price they are missing this dividend that is paid monthly and any surprisingly large increases that may be made. Who knows, if ever, that O will drop to any specific price that will correspond to an investor's "Proper Value?" For the full argument of why dividend investors should not chase capital gains in their O investment see here.

Conclusions.

In my last article on O, my thesis maintained that dividend income investors should not chase possibly fantasy capital gains in O, when it seems that the stock has reached a stretched valuation, by either selling some or all of their O stock with the idea that they can buy it back at a lower price. Who can accurately say what is absolutely "stretched" in O's case---$55, $60, $65, $70? And at what price would this investor be certain to buy O back---$40, $45, $50? Would the buyback price arrive before or after Godot? Meanwhile, this dividend income investor will miss the O dividend monthly payout and such surprises as O gave us on 1/17/17.

If you believe as I do, that O is a bona fide core "buy and hold" company for the dividend income investor---notice I didn't say Dividend Growth Investor because I don't attach great importance to the rate of yearly dividend growth, only to the fact of yearly dividend growth---then O is an investment that should not be sold for capital gains under any circumstances short of a change in management dividend objectives in favor of eschewing dividends or dividend growth or both!

The new to O individual income investor must decide for themselves at what price their YOC in O makes sense to their income needs. Then they should buy O at that price & use or reinvest the dividend income as needed, but short of dividend Armageddon in O management, continue to hold O for the duration (in my case until they pack me away forever) for the high YOC income from years of dividend growth. Those who already hold O should continue to hold it and get rich on the monthly dividends and avoid the temptation to try and capture capital gains with an eye to buying O back at a lower price.

Disclaimer: The information I have provided is not meant to be investment advice, nor is it guaranteed in any way to assure success in O. Potential investors need to make their own choices based on further due diligence & their particular investment needs.

Disclosure: The author is long O. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.

Disclosure: I am/we are long O.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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