Retail REIT Realty Income Corporation O announced a hike in its common stock monthly cash dividend. This marks the company’s 93rd dividend increase since its NYSE listing in 1994. The company would now pay 21.2 cents per share against 21.15 cents paid earlier.
Realty Income will pay the increased dividend on Oct 13 to shareholders of record as of Oct 2, 2017. The new dividend rate depicts an annualized amount of $2.544 per share versus the prior rate of $2.538 per share.
Solid dividend payouts are arguably the biggest enticement for REIT shareholders and Realty Income remains committed to that. The company enjoys a trademark on the phrase “The Monthly Dividend Company” and the October 2017 dividend payment not only marks its 567 consecutive monthly dividend payouts throughout its 48-year operating history, but also 80 consecutive quarterly increases.
In fact, the company generated a compound average annual dividend growth of around 4.6% since its listing on the NYSE. Given its financial position and lower debt-to-equity ratio compared to that of the industry, this dividend rate is likely to be sustainable.
Notably, shrinking footfall at malls amid shift of consumers toward online channels, store closures and bankruptcy of retailers has emerged as a pressing concern, of late, for most retail REITs. However, not all are equally facing the brunt, with some of these companies managing to book gains even in the tepid scenario, thanks to the business models.
In fact, this freestanding retail REIT — Realty Income — derives more than 90% of its annualized retail rental revenues from tenants belonging to service, non-discretionary and low-price retail business. Such businesses are less susceptible to economic recessions, as well as competition from Internet retailing. Also, growing monthly dividend payouts are a positive for shareholders.
Nonetheless, the company’s substantial exposure to single-tenant assets raises risks associated with tenant default. Further, generation of notable rental revenues from assets leased to drug stores and rate hike increase its woes.
Realty Income currently has a Zacks Rank #3 (Hold). Moreover, year to date, shares of Realty Income have outperformed the industry it belongs to. In fact, despite the choppy environment in the overall retail real estate market, the company’s shares gained 2.6% over this time frame, as compared with 5.0% loss incurred by the industry.
Stocks to Consider
Better-ranked stocks in the real estate space include PS Business Parks, Inc. PSB, InfraREIT Inc. HIFR and UMH Properties, Inc., UMH, each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
While PS Business Parks and InfraREIT have expected long-term growth rates of 5% and 8%, respectively, the expected long-term growth rate for UMH Properties is currently pegged at 10%.
Note: All EPS numbers presented in this write up represent funds from operations (“FFO”) per share. FFO, a widely used metric to gauge the performance of REITs, is obtained after adding depreciation and amortization and other non-cash expenses to net income.
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