Realty Income Corporation is Great for Income
It is a new interest rate cycle, that’s for certain, but rate-dependent businesses like realty income stocks can still soar this year because the Fed is still an investor’s best friend. Case in point: Realty Income Corp (NYSE:O).
In this slow-growth world—even the Fed admits it is struggling to generate any material growth—dividend income is an absolute crucial component to your total investment return.
In this market, I like dividend-paying stocks. This is for many reasons, not the least of which is because it’s what institutional investors (the driver of share prices) are buying.
Realty Income Corporation is a real estate investment trust (REIT) out of San Diego that owns more than 4,400 properties located in 49 states and Puerto Rico. This firm boasts an excellent track record of wealth creation and income generation for unit holders.
This particular security makes for an attractive holding, even by those not requiring monthly income. Realty Income is well suited for automatic dividend reinvestment, which is an investment strategy that builds a growing position in a business over time by reinvesting dividend income in a stock without paying trading commissions.
Realty Income Corporation mostly owns commercial properties that are subject to long-term leases, many of which include retail stores that sell goods and services at lower price points.
Some of the trust’s tenants include Walgreens, FedEx, LA Fitness, AMC Theaters, Wal-Mart, and CVS Pharmacy. Walgreens is one of the trust’s top tenants, representing around seven percent of Realty Income’s total revenue.
The chart for Realty Income stock is featured below:
Chart courtesy of www.StockCharts.com
A good, well-managed REIT is a welcome addition to investment-grade portfolios because real estate is such a large component of domestic economic activity. And the cash flows, so what’s really important is a proven management team that can handle both the business cycle and the way capital markets operate over time.
Realty Income’s track record speaks for itself. Fourth-quarter 2015 revenue grew 6.5% to $264 million. For all of 2015, total revenue improved 9.6% to $1.02 billion, which is a solid accomplishment for any mid-cap enterprise operating in the domestic market.
Stockholder earnings in the fourth quarter of 2015 were $76.0 million compared to $71.0 million. In December, the trust announced its 73rd consecutive dividend increase. In January of 2016, the trust’s new monthly dividend was raised five percent once again. The next distribution is scheduled to be mailed out on May 16.
The Bottom Line on Realty Income
Interest rates, otherwise known as the cost of capital for corporations or an enterprise, are still very low. Fourth-quarter 2015 interest costs for Realty Income Corporation were actually lower by approximately 12% compared to the fourth quarter of 2014.
Because the Federal Reserve is lessening the pressure on rising rates on a near-term basis, any capital market security that’s interest rate-sensitive is now in a slightly more favorable position.
Realty Income Corporation is a proven operator and a successful REIT worthy of consideration by income investors on price retrenchments.
Commercial real estate in the U.S. market should not be considered robust right now, but it’s a good long-term business to be in. The outlook for Realty Income stock remains solid.