Realty Income Corporation (NYSE:O) is a real estate investment trust headquartered in San Diego, California. The company has a market cap of just over $15 billion and is one of the largest real estate investment trusts in the world. At the same time, the company is the only large real estate investment trust to pay out a monthly dividend. The company's commitment to increasing this monthly dividend over the long term shows how the company is an amazing monthly dividend investment.
Realty Income Corporation was founded in 1969. Since then, the company has shown a commitment to increasing its monthly dividend. Not only is the company nearly a dividend aristocrat, 25 years of consecutive dividend increases, but the company has also achieved 77 consecutive quarterly dividend increases. This means that Realty Income Corporation has been increasing its dividend four times a year, something that no other company has done. This is a fundamental introduction to how Realty Income Corporation is an amazing dividend investment.
Realty Income has had fairly consistent long-term stock performance that has fluctuated some these past years. As with other REITs, the company saw its stock price peak in mid-2013 at just over $55 per share. From that point, the company's stock price fell to a late 2013 low of just over $37 per share before recovering rapidly to more than $70 in mid-2016. Since then, the company has briefly fallen to its present stock price of just under $60 per share.
Realty Income Overview
Now that we have an introduction to Realty Income and the company's recent stock price performance, it is now time to continue by discussing the company overall.
Realty Income Corporation has an equity market cap of $17.3 billion and a total enterprise value of $23.0 billion making the company the largest net lease REIT. The company is a member of the S&P 500 index (NYSEARCA:SPY) and has managed to consistently grow its dividend. As a result, since 1994, the company has managed a 17.9% compound average annual return.
On top of these strong returns, the company has managed an investment grade credit rating with either a stable or positive outlook from the three industries. The company has achieved a 22.9% debt to total market capitalization ratio and a 5.3x debt to EBITDA ratio, both fairly low for the present environment. On top of this, the company has a fairly low 6.8-year weighted average duration for its bonds. This should help keep interest expenses for the company low.
Source: Realty Income Long Term Strategy - Realty Income Investor Presentation
On top of this impressive overview, Realty Income Corporation has continued to build its reputation as the monthly dividend company. The company has continued to execute its long-term net lease agreements providing it with consistent long-term income. At the same time, the company has continued to maintain high occupancy with a conservative balance sheet.
This shows that Realty Income has continued to grow monthly income for its shareholders while remaining committed to a strong balance sheet. This helps support how Realty Income is an amazing monthly dividend investment that remains committed to increasing its dividend and rewarding its shareholders. And this helps to show why this company is one of my favorite investments.
Realty Income Growth History
Now that we have an introduction to Realty Income and the company's recent stock price performance, along with an overview of the company, it is now time to continue by discussing the company's growth history.
Source: Realty Income Free Cash Flow Per Share - Realty Income Investor Presentation
Realty Income Corporation has managed to consistently grow its free cash flow per share for the past 15 years with the exception of a difficult year in 2012. The company's FFO/share has consistently remained in the mid-single digits increasing to the double digits in the recent years. This is all income that the company can use to consistently increase its dividend year after year.
This helps to show Realty Income's history of consistently increasing its free cash flow, free cash flow that it can put into increasing its dividend.
Source: Realty Income Occupancy Levels - Realty Income Investor Presentation
Part of Realty Income's ability to consistently increase its dividends results from its consistently high occupancy levels. The company's occupancy levels have never fallen below 96% and have remained above 98% for the past five years. The company's sustained high occupancy rates come from its careful selection of customers and clauses in its contracts that allow it to steadily increase rates.
This has allowed Realty Income to keep expenses relative to costs low and to consistently increase its income from stores even as they're in contracts. And this consistent income is what allows Realty Income to pay out a consistent and growing income to its shareholders.
Realty Income Portfolio
Now that we have discussed Realty Income and have an overview of the company, along with the company's recent growth history, it is now time to continue by discussing Realty Income's portfolio. This portfolio is what fundamentally allows Realty Income to pay its entire dividend.
Source: Realty Income Diversified Portfolio - Realty Income Investor Presentation
Realty Income Corporation has a well distributed portfolio with the top 20 tenants providing 54% of the total revenue and operating in 12 different industries. Eight of these companies have investment grade credit rating and the largest of them all represents just 7.3% of the company's revenue.
This shows Realty Income Corporation's well distributed portfolio that can bring it with consistent income.
Source: Realty Income Defensive Industry Exposure - Realty Income Investor Presentation
At the same time, Realty Income is well distributed by industry. The company's largest industry is drug stores, which makes up 11% of the company's income followed by convenient stores and dollar stores. These are all different industries that vary from each other. And that means that when market crashes happen, Realty Income Corporation's income continues to remain strong.
And this shows the strength of Realty Income's portfolio and how well distributed it was.
Realty Income Investment Strategy
Now that we have an overview of Realty Income, we have had a thorough discussion of Realty Income's growth history and the company's well distributed portfolio, let's move on by discussing Realty Income's investment strategy for future growth.
Source: Realty Income Investments - Realty Income Investor Presentation
Realty Income Corporation has focused on a strategy of disciplined execution with a consistent focus on increasing its income. The company's investment income increased from 2010 to 2013 and currently hovers at around $1 billion per year. However, most importantly, the company has managed to consistently increase its average long-term lease rate bringing security to its income.
Over time, the company has also increased the number of its properties it rents out to investment grade customers. That means, that coupled with the company's longer term leases, the company will continue to have long-term respectable income. On the downside, the makeup of retail in the company's properties is increasing. That means the company is subject to a downturn in the brick and mortar retail industry.
Source: Realty Income ARCT Transaction - Realty Income Investor Presentation
On top of this, Realty Income Corporation has showed dedication through continued growth from its ARCT transaction in 2013. The $3.2 billion acquisition helped Realty Income's portfolio to increase its diversity while providing the company with additional annual income. More acquisitions like this would allow the company to continue to reward investors and increase the stability of its long-term cash flow.
This helps to demonstrate Realty Income Corporation's investment strategy that is focused on consistent long-term growth. And this strategy will allow the company to continue to increase its monthly dividend over the long term.
Realty Income Capital Structure
Now that we have an overview of Realty Income Corporation and we have discussed the company's portfolio, growth history, and investment strategy, it is now time to conclude by discussing the company's capital structure.
Source: Realty Income Capital Structure - Realty Income Investor Presentation
Realty Income Corporation currently has $17.3 billion in common stock spread out across 259 million shares. The company also has $5.3 billion in debt of which $4.0 billion in unsecured notes/bonds. Lastly, the company has $0.4 billion in preferred stock at a 6.625% interest rate callable in February 2017. Given the company's low cost of debt, I anticipate the company will call these preferred stocks when it can, over the next month.
This gives Realty Income Corporation a total capitalization of $23.0 billion. At the same time, the company has a fairly low debt to common stock ratio showing the strength of the company's balance sheet.
Source: Realty Income Debt Maturity Schedule - Realty Income Investor Presentation
On top of all of this, Realty Income Corporation has a well laddered debt maturity schedule. The company's most expensive debt comes due over 2017, when the company has the chance to pay the majority of it off. The company also has expensive debt due in 2021 and 2025, debt which it can take the opportunity to pay back. In fact, the company has the opportunity of using its revolver to buy back its debt.
With a low weighted debt yield of 4.1% and annual free cash flow of $0.11 billion, Realty Income Corporation has the cash to continue paying off its debt. This shows that Realty Income Corporation will have the excess cash flow to support its debt.
Realty Income Corporation has seen its stock price drop in recent months from $70 per share to recent stock prices of less than $60 per share. Despite this, Realty Income Corporation has remained committed to its reputation of being the monthly dividend company.
The company has continued to increase its dividend an astounding 84 times since its public listing, showing its commitment to growth.
On top of this, Realty Income Corporation's future looks bright. The company has continued growing its cash flow through regular annual new property acquisitions, allowing it to increase its dividend. At the same time, the company has continued to decrease its diversification as evidenced by its 2013 acquisition of ARCT.
This shows Realty Income Corporation's commitment to increasing its dividend over the long term and how the company is a strong monthly dividend investment.
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.