Zacks Equity Research
·4 min read
Boosting shareholders’ wealth, Realty Income Corporation O announced an increase in its common stock monthly cash dividend to 25.65 cents per share from 25.60 cents paid out earlier. This marked its 123rd common stock monthly dividend hike since its listing on the NYSE in 1994.
The increased dividend will be paid out on Jan 12 to shareholders of record as of Jan 2, 2023. The latest dividend rate marks an annualized amount of $3.078 per share compared with the prior rate of $3.072. Based on the company’s share price of $54.48 on Dec 12, the latest hike results in a dividend yield of 5.65%.
Though the latest hike marks a marginal increase from the prior dividend, the latest dividend announced will be the company’s 642nd consecutive monthly dividend payout in its 54-year operating history.
Solid dividend payouts are the biggest enticements for real estate investment trust (REIT) investors, and Realty Income is committed to boosting its shareholder wealth. This retail REIT holds the trademark of the phrase “The Monthly Dividend Company.” It has made 105 consecutive quarterly dividend hikes. This retail REIT has witnessed compound average annual dividend growth of 4.3% since its listing on the NYSE.
Moreover, Realty Income has increased its dividend 23 times in the last five years and has a five-year annualized dividend growth rate of 3.05%. Check Realty Income’s dividend history here.
O's high-quality portfolio and its ability to generate sufficient cash flow through its operating platform are reflected in the latest hike. The majority of its annualized retail contractual rental revenues are generated by clients who have a service, non-discretionary and/or low-price-point component to their business. Such businesses are less likely to be affected by economic downturns and competition from online sales.
These provide more reliable streams of income, which boost the stability of rental revenues and generate predictable cash flows. For 2023, we estimate the company’s rental revenues (excluding reimbursables) to increase 17.1% year over year.
Moreover, Realty Income’s diversified tenant base and accretive buyouts bode well for its long-term growth. In November, it entered into a joint venture with Digital Realty DLR to facilitate the development of two build-to-suit data centers in Northern Virginia. It invested approximately $200 million, securing an 80% equity interest in the venture, while Digital Realty maintains a 20% interest. This marks the retail REIT’s maiden foray into the data center sector. The latest move is in sync with the company’s portfolio diversification efforts.
Realty Income maintains a healthy balance sheet position and exited the third quarter of 2023 with $4.5 billion of liquidity. The company ended the quarter with modest leverage and strong coverage metrics with net debt to annualized pro forma adjusted EBITDAre of 5.2X and a fixed charge coverage of 4.5X. O also enjoys a credit rating of A- (Stable) and A3 (Stable) from Standard & Poor’s and Moody’s, respectively, which provides access to the debt market at favorable costs.
With ample financial flexibility, the company remains well-poised to respond to any challenges and bank on growth opportunities. Moreover, with healthy operating fundamentals, a solid financial position and a lower debt-to-equity ratio compared with the industry, we expect the latest dividend rate to be sustainable.
Shares of this Zacks Rank #2 (Buy) company have gained 4.5% in the past month compared with the industry’s rise of 4.7%.
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Other Stocks to Consider
Some other top-ranked stocks from the REIT sector are Tanger Inc. SKT and Equinix EQIX.
The Zacks Consensus Estimate for Tanger’s ongoing year’s FFO per share has been revised 1.6% upward in the past month to $1.94. Currently, SKT sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
EQIX carries a Zacks Rank #2 at present. The Zacks Consensus Estimate for Equinix’s current-year FFO per share has been raised marginally in the past week to $32.07.
Note: Anything related to earnings presented in this write-up represents funds from operations (FFO) — a widely used metric to gauge the performance of REITs.
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Equinix, Inc. (EQIX) : Free Stock Analysis Report
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Realty Income Corporation (O) : Free Stock Analysis Report
