The best monthly dividend stocks provide predictable, growing income. With 550 consecutive monthly dividends paid and 74 consecutive quarterly increases, Realty Income Corp (NYSE:O) is one of the most dependable dividend-paying stocks in the market.
If the valuation is reasonable, these are the types of companies I like to own in our Conservative Retirees dividend portfolio.
Let’s take a closer look at Realty Income to see if it can make the cut.
First though, Insider Monkey will provide an analysis of how hedge funds were trading Realty Income Corp in the first quarter. 14 hedge funds in our database were long Realty Income Corp on March 31, with them owning just 0.80% of the company’s outstanding shares. That was actually an increase from the end of 2015 however, with hedge fund ownership rising by 3 and the value of hedge funds’ holdings jumping by 73% during the quarter. Nonetheless, no investors that we track were overly bullish on the stock, with Phill Gross and Robert Atchinson’s Adage Capital Management owning the largest position, valued at $23.13 million on March 31.
Business Overview
Realty Income was founded in 1969 and is a real estate investment trust (REIT) with more than 4,600 properties located across 49 states.
Almost all of the company’s properties are single-tenant and are leased to 243 different commercial tenants doing business in nearly 50 different industries.
Retail properties account for close to 80% of Realty Income’s total rent, and all of its properties are under long-term triple-net lease agreements, which provide solid cash flow visibility and shift property operating expenses such as maintenance, utilities, insurance and taxes to the tenant.
In other words, the rental revenue received by Realty Income has substantially fewer expenses and more stable net cash flow compared to REITs with a smaller mix of triple-net leases.
Business Analysis
It’s no secret that few companies have maintained as strong of a dividend growth track record as Realty Income.
The company’s success is driven by its diversified portfolio, disciplined capital allocation, focused business strategy, and strong financial health. These factors have combined to create an extremely resilient business.
Realty Income’s long-term growth has been nothing short of outstanding. Since 1994, the company has grown its real estate assets (at cost) from $451 million to $12.6 billion; expanded the number of industries served by its portfolio from 5 to 47; increased its number of commercial tenants from 23 to 243; and boosted its annual revenue from $49 million to over $1 billion.
Management’s growth strategy over this time has been very focused. The company leverages its relationships with tenants, property developers, brokers, investment banks, and other parties to source acquisition opportunities with strong initial cap rates and built-in rent growth.
Realty Income will only purchase freestanding, single-tenant properties located in big markets and/or key locations that it can lease to tenants with superior credit ratings and cash flows.
The retail business is very much driven by location, and Realty Income’s portfolio clearly plays to this critical success factor.
As seen below, Realty Income’s occupancy rate has never dipped below 96.6% going all the way back to 1992.
Source: Realty Income
