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Realty Income's Monthly Dividend Is Not Ironclad But It Is Considered 'Sacrosanct'

Jan. 05, 2022 8:40 AM ETRealty Income Corporation (O)ONL14 Comments
Valuentum profile picture


  • Realty Income is a great dividend growth opportunity, in our view, and the REIT has not disappointed.
  • Management has noted in the past that it treats "the dividend as sacrosanct to (its) mission."
  • We must caution that Realty Income remains capital market dependent, however, as traditional free cash flow analysis reveals a REIT much in need of external capital.
  • There's not much to worry about today with respect to Realty Income's payout given recent capital market activity, however, and we applaud management's poise during the COVID-19 pandemic.
  • From our perspective, it's hard to find a more attractive and dependable monthly dividend paying REIT than Realty Income given its long-term growth track record. Shares yield ~4.15%.

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Realty Income (NYSE:O) is a REIT that has thousands of properties across the U.S., Puerto Rico, and U.K. It is an integrated real estate company with in-house finance/accounting, tenant research, portfolio management, and capital markets expertise. We like the REIT's solid

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Valuentum profile picture
We offer subscriptions and exclusive newsletters. Visit our website at www.valuentum.com for more information. Valuentum is an independent investment research publisher, offering premium equity reports and dividend reports, as well as commentary across all sectors/companies, a Best Ideas Newsletter (spanning market caps, asset classes), a Dividend Growth Newsletter, modeling tools/products, and more. Valuentum is based in the Chicagoland area. Valuentum is not a money manager, broker, or financial advisor. Valuentum is a publisher of financial information. Please read our Disclaimer that applies to all articles published on Seeking Alpha: http://www.valuentum.com/categories/20110613. Follow us on Twitter: @Valuentum

Analyst’s Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. 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.

Brian M. Nelson, CFA, owns shares in SPY, SCHG, QQQ, DIA, VOT, BITO, and IWM. Valuentum owns SPY, SCHG, QQQ, VOO, and DIA. Brian Nelson's household owns shares in HON, DIS, HAS, NKE. Realty Income is included as an idea in Valuentum's simulated Dividend Growth Newsletter portfolio. For updates, please visit us at www.valuentum.com. This article is for information purposes only and should not be considered a solicitation to buy or sell any security. Neither Valuentum nor any of its affiliates own any securities mentioned in this article. Contact Valuentum for more information about its editorial policies.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (14)

thirdcamper profile picture
Does anyone know of a publicly available source of NAV values for REITs?
I estimate Reality Income Corp.'s fair value to be $44 at this point.
Monthly Income Investor profile picture
@Fred Ziffel Sweet, I bought a bunch at 44.21 in 2015!!!!! So you think its more of a 6.7% yielder, than its current 4.15?
Can I have a drum roll please..... and now for an early entry in the dumb SA headlines of 2022 we bring you ..........whatever this is.
Of course, the dividend is funded by secondary offerings of more stock. Companies that continously dilute their shareholders are poor investments
jgrever621 profile picture
Your comments regarding REIT capital raising are certainly correct in that REITs need capital for growth, but fall short when considering capital raising a risk; REITs don't absolutely have to raise capital, in that they do generate some on their own, usually paying most depreciation and earnings out as dividends.

Nor do REITs have a direct threat to their income when NOT raising capital, as there is no reason inherent in the REIT that stops existing revenue to become dividend payments (and the law does require 90% of earnings to be distributed as you note).

And I do question your calcuation of WACC; most REIT investors consider O's capital costs close to 4%, as do I.

No, REITs are not bonds, though I think they offer some advantages over bonds in many but NOT all aspects.

And most REIT investors would point you to NAREIT for more information on how to value and analyze REITs.
That was proven by the office spin out - those bag holders still waiting on even what dividend policy it’s going to have .
Nate the Great profile picture
To me, $O is a nice place to park some cash for a decent monthly return while waiting for other action, as long as it's not overbought at the time. Steady as she goes! I keep a full position in my IRA and also have it as a separate "garage" investment in a cash account.
@Nate the Great I owned a lot of O when it one day I saw it at 60 and I sold it all for a bundle. Thought it was overbought. Pandemic gave me a chance to do it again. In the meantime I've lost a lot of money looking for the action. Won't make those mistakes again.
wam350 profile picture
Obtained O when they brought out VER. Have been very pleased and now building O into a core holding.
littlecubbie2019 profile picture
I think I’d dividend is about as ironclad as they come. Long o
i mean you could view it as $O issuing shares to fund dividend increases. But really the core business is not dependent on capital markets at all. The primary reason they issue new shares (ie lean on capital markets) is to fund acquisitions. If there are bad market conditions, they pause acquisitions = pause new shares issuance, and continue to pay the dividend that are funded by its existing asset base. so no, its not dependent on external capital.
Valuentum profile picture

Thank you so much for the comment! We appreciate your perspective and opinion.

We do a lot of work on the REITs. Here is more information: www.valuentum.com/...

Kind regards,

The Valuentum Team
Liquidors profile picture
@beersnbeaches they issued shares at I think 57 in 2020?
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