Today, Investment U’s Income Expert, Marc Lichtenfeld, takes a look at Realty Income’s dividend safety.
Realty Income (NYSE: O) is a favorite among dividend and real estate investment trust (REIT) investors because the company pays monthly dividends and is a Perpetual Dividend Raiser (a company that raises its dividend every year).
In fact, Realty Income has boosted its dividend every quarter for 92 straight quarters. For those of you who don’t feel like doing the math, that’s 23 years – and a hell of a track record.
Its most current dividend is $0.234 per share, which comes out to a 4.6% yield. But can a commercial real estate company keep paying shareholders a generous dividend during a pandemic when people are not venturing out as much as they used to?
Realty Income owns more than 6,500 properties with a combined 600 tenants in 49 U.S. states and the United Kingdom. Most of the tenants are low-price-point retailers like dollar stores, which should hold up better in a weak economy.
Its top tenants include Walgreens, 7-Eleven and Dollar General (NYSE: DG).
The only trouble spots I see among its top 20 tenants are Regal Cinemas and AMC Entertainment (NYSE: AMC). Each theater chain makes up a little less than 3% of Realty Income’s revenue.
The company has collected 93.8% of the rent it was owed in September. It did not disclose how that compares with last September.
But Wall Street still expects the company’s funds from operations (FFO), a measure of cash flow used by REITs, to increase this year despite the pandemic.
In fact, Realty Income’s FFO has been steadily rising for years.
Realty Income Dividend Safety Rating
This year, the company is forecast to pay out $948 million in dividends. The forecast $1.16 billion in FFO should easily cover that payout to shareholders. In order for Realty Income to not be able to afford its dividend, FFO would have to dip back to 2018 levels.
As you’re very well aware, 2020 is not a normal year. Should some of Realty Income’s tenants stop paying their rent, FFO could drop.
But Realty Income is a company that gets the benefit of the doubt. A 23-year track record of quarterly dividend raises and yearly FFO growth has earned it that confidence.
Even if FFO were to drop, that excellent dividend-paying track record suggests that management takes the dividend very seriously and would do what it takes to avoid a cut.
Out of 119 REITs rated by SafetyNet Pro, only 19 receive the highest rating for dividend safety. Realty Income is one of them.
Dividend Safety Rating: A
Realty Income’s dividend safety is as safe as it can be at the moment. And this REIT shows no signs of slowing down after 23 straight years of boosted dividends. There’s almost no risk of this dividend being cut unless a large portion of its tenants can’t pay their rent.
However, many dividends are at risk of being cut this year due to economic setbacks and market volatility. To get ahead of these cuts, be sure to sign up for the Wealthy Retirement e-letter below. This FREE e-letter is full of stock market tips, trends and retirement strategies to build towards a life of financial independence.
About Marc Lichtenfeld
Marc Lichtenfeld is the Chief Income Strategist of Investment U’s publisher, The Oxford Club. He has more than three decades of experience in the market and a dedicated following of more than 500,000 investors.
After getting his start on the trading desk at Carlin Equities, he moved over to Avalon Research Group as a senior analyst. Over the years, Marc’s commentary has appeared in The Wall Street Journal, Barron’s and U.S. News & World Report, among other outlets. Prior to joining The Oxford Club, he was a senior columnist at Jim Cramer’s TheStreet. Today, he is a sought-after media guest who has appeared on CNBC, Fox Business and Yahoo Finance.
Marc shares his financial advice via The Oxford Club’s free daily e-letter called Wealthy Retirement and a monthly, income-focused newsletter called The Oxford Income Letter. He also runs four subscription-based trading services: Technical Pattern Profits, Penny Options Trader, Oxford Bond Advantage and Predictive Profits.
His first book, Get Rich with Dividends: A Proven System for Earning Double-Digit Returns, achieved bestseller status shortly after its release in 2012, and the second edition was named the 2018 Book of the Year by the Institute for Financial Literacy. It has been published in four languages. In early 2018, Marc released his second book, You Don’t Have to Drive an Uber in Retirement: How to Maintain Your Lifestyle without Getting a Job or Cutting Corners, which hit No. 1 on Amazon’s bestseller list. It was named the 2019 Book of the Year by the Institute for Financial Literacy.
