Realty Income (O) is a commercial REIT that, over the past 52 years, has been purchasing and operating freestanding properties that generate rental revenues under long-term lease agreements.
Based on Realty Income's latest quarterly filing, the REIT owned 7,018 properties with an occupancy rate of 98.8% and a weighted average remaining lease term of approximately 8.8 years. The company's tenants conduct business in more than 60 different industries, which means that Realty Income enjoys very satisfactory diversification levels.
Also, since 99.2% of its properties are single-client oriented, Realty Income is able to select high-quality clientele and handle rental collection more efficiently.
Among the REIT's most noteworthy competitive advantages, in my opinion, is also Realty Income's competent management team which has thoughtfully steered the company through diverse economic environments while consistently delivering excellent results.
Powered by its attractive characteristics and management's commitment to long-term shareholder returns, Realty Income is one of the best dividend stocks out there, which has provided a stable and predictable income for shareholders for decades now.
The company's latest dividend hike further solidified its robust track record. Combined with the likelihood that the stock is trading at an attractive valuation, in my view, I am bullish on the stock. (See Analysts’ Top Stocks on TipRanks)
Another Dividend Hike
Realty Income has proudly trademarked itself as "The Monthly Dividend Company." The company is also a member of the S&P 500 Dividend Aristocrats index for boasting a track record of raising its dividend annually for more than 25 (27 in Realty Income's case) consecutive years.
A few days ago, the company announced another dividend hike, marking an increase of 0.2% compared to the previous dividend. During 2021, Realty Income has announced five dividend hikes for a total increase of 5.1%, while the most recent hike also marked its 114th dividend increase since 1994.
Realty Income's 10-year dividend per share CAGR stands at around 5%, which is higher than the historical inflation levels. It's also worth noting that since the REIT's dividends are paid every month, shareholders enjoy a predictable stream of income.
Further, dividends can compound faster if they are reinvested at a monthly rate. Hence, investors who don't necessarily want to utilize Realty Income's dividend yield to pay their bills are also likely to appreciate the monthly compounding.
Realty Income's payout ratio also stands below 80%, which means that the company should comfortably continue to grow its dividend.
The Valuation
Realty Income is regarded as a high-quality REIT amongst investors. Because of this and its robust dividend growth track record, shares have historically traded with a modest premium attached.
The stock currently trades at a P/FFO (funds from operations) of around 19, which, in my view, is a fair multiple for the company's underlying qualities and dividend growth prospects.
Additionally, due to inflation levels hitting multi-year record highs over the past few months, Realty Income should be able to provide investors with a meaningful margin of safety as real estate rent growth and valuations tend to surpass inflation.
Wall Street’s Take
Turning to Wall Street, Realty Income has a Moderate Buy consensus rating based on four Buys, and four Holds assigned in the past three months.
At $77.50, Realty Income stock projections suggest 16.2% upside potential.
Disclosure: At the time of publication, Nikolaos Sismanis did not have a position in any of the securities mentioned in this article.
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