Realty Income Dividend Safety: A 4.6% Yield From a Perpetual Dividend Raiser
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
A master of the steady, reliable science of income investing, Marc’s commentary has appeared in The Wall Street Journal, Barron’s and U.S. News & World Report. He has also appeared on CNBC, Fox Business and Yahoo Finance. His book Get Rich With Dividends: A Proven System for Double-Digit Returns achieved best-seller status shortly after its release in 2012. He captures the hearts and minds of readers approaching their golden years in his daily e-letter, Wealthy Retirement.