Realty Income Corp. (NYSE: O), which has paid out 541 consecutive monthly dividends (that’s 45 years, folks) and has gone so far as to trademark the term “The Monthly Dividend Company” for itself, has a highly specific strategy that has obviously paid off. It purchases commercial real estate leased to tenants under long-term net lease agreements of up to 20 years. The lease payments are what generates those monthly dividend payments.
Realty Income now owns over 4,400 properties, diversified across 235 commercial tenants operating in almost 50 industries, across all but one state. These tenants are mostly in consumer staples, offering products that consumers must buy and at price points that are so low that they will always generate foot traffic. We’re talking convenience stores, dollar stores and drugstores.
Also important is that the leases are “triple-net,” which means that tenants pay rent every month but also get hung with the property’s operating expenses. Imagine owning a property and having the tenant pay its taxes! Nice.
Like all good companies, it seeks to grow. It does so by either increasing the size of its owned property portfolio with increasingly expensive leases or declining cost of capital.
Realty Income reported record operating results on July 29 for the both the second quarter and the first half of the year.
Revenue leapt 11% to $254 million, up from $229 million last year. For the six-month period just ended, revenue also increased 11% to $501 million, compared to $450 million last year.
With real estate investment trusts, we next look to “net income available to common stockholders,” which is the next level down from revenue. That metric was $59.3 million, up 16% from last year’s $51.4 million. For the six-month period, it was $119.8 million, compared to $98.6 million for the prior year period.
Now we have to convert the net income number, which isn’t as important for REITs as it is for other stocks, into the more important metric: “funds from operations (FFO) available to common stockholders.” We need to calculate this to determine how much possible dividend money is available.
FFO for the quarter jumped 12% to $160 million, up from $142 million. That’s a 7.8% increase and very respectable for a REIT. On the six-month calculation, the increase is even better: up 12.8% from $277 million to $312 million.
There’s yet another level to drill down to: “adjusted funds from operations (AFFO) available to common stockholders.” AFFO for the quarter increased 12.7% to $159 million, up 13% year-over-year. AFFO for the six-month period increased 13.7% to $311 million, as compared to $273.8 million from the prior year. AFFO takes into account certain one-time revenue or expenses, so that the actual dividend that can be paid this quarter is determined with even more certainty.
Of course, there was plenty of cash to pay to shareholders. In fact, things were so great that Realty Income provided shareholders with its 71st consecutive quarterly dividend increase. That’s right – where most companies increase dividends annually, for the past 18 years Realty Income has done so quarterly.
That payout was $0.569 per share, or about $2.28 annually, which is a 4.8% yield.
I see no reason not to buy The Monthly Dividend Company. It continues to blast forward.
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