We recently compiled a list of the Dividend Aristocrats Ranked By Yield: Top 10. In this article, we are going to take a look at where Realty Income Corporation (NYSE:O) stands against the other dividend aristocrats.
Investors have always put income at the top of their list. And when it comes to raking in money, you can’t beat dividend stocks. Research by S&P Dow Jones Indices has demonstrated that over the long haul, dividend-paying companies have outperformed non-dividend companies and the broader market on a risk-adjusted basis. Though investing in high dividend yields is not advised by analysts, recent research indicates that dividend yield is a risk factor that pays off, historically earnings higher returns than a market-cap-weighted benchmark. When paired with other factors like volatility, quality, momentum, size, and value, dividend yield strategies can potentially tap into systematic sources of returns.
Dividend yield and dividend growth have always been a hot topic among investors. But little did they realize that dividend yield is a key piece of the puzzle when it comes to dividend growth. When it comes to the Dividend Aristocrats Index, the knack for increasing dividends for 25 straight years doesn’t mean sacrificing yield. The index has consistently outshone its benchmark by delivering higher yields, typically between 2% and 2.9% over the past 26 years ending 2023. On average, the index’s yield was 2.5%, compared to the market’s 1.8%. To read more about high dividend stocks, have a look at Best Dividend Stocks Yielding at Least 7% According to Hedge Funds.
In addition to offering solid yields, dividend aristocrats are also less volatile than other asset classes. According to a report by S&P Dow Jones Indices, the Dividend Aristocrats Index has outpaced the broader market over the long haul with less volatility, which is indicated by its higher risk-adjusted returns. The index’s ability to provide downside protection is evident in its upside and downside capture ratio. These stocks have outperformed the market in 69.34% of down months and 43.61% of up months. Moreover, the Dividend Aristocrats Index has experienced lower drawdowns compared to the benchmark index. The report further mentioned that the index delivered an average excess return of 1.05% during down months compared to the broad-based benchmark.
Data from 2023 highlights how eager companies are to boost their dividends. This isn’t just a knee-jerk move to lure investors; it’s backed by robust corporate balance sheets, with companies raking in more cash flows than ever before. According to Janus Henderson, corporate cash flow remained strong in 2023 across most sectors, giving companies ample resources for dividends and share buybacks. As a result, global dividend growth saw a 5% increase for the year, aligning with the long-term trend. The firm also gave a positive outlook for dividends in 2024. It said that dividends appear solidly supported this year, although one-time special dividends are expected to decrease from the record levels observed over the past three years. The firm’s forecast predicts $1.72 trillion in dividends for 2024, marking a 3.9% increase on a headline basis, which translates to a 5% growth rate on a headline basis.
There are many dividend aristocrats that offer solid yields to shareholders. In this article, we will take a look at some of the best dividend aristocrat stocks with high yields.
Our Methodology:
For this list, we looked at a group of 67 dividend aristocrat companies, which are known for raising dividends for 25 years or more. From this list, we chose 10 stocks with the highest dividend yields as of June 25 and arranged them in order from lowest to highest yield. We also measured hedge fund sentiment around each stock according to Insider Monkey’s database of 920 funds as of Q1 2024. Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points. (see more details here).
A modern city skyline with a REIT retail building at the center to symbolize the company’s reach.
Realty Income Corporation (NYSE:O)
Dividend Yield as of June 25: 5.91%
Also known as the monthly dividend company, Realty Income Corporation (NYSE:O) stands second on our list of the best dividend aristocrat stocks. On June 11, the real estate investment trust company raised its monthly dividend by 0.2% to $0.263 per share. This was the company’s 125th consecutive monthly dividend hike since being listed on NYSE in 1994. As of June 25, the stock has a dividend yield of 5.91%.
The stability of Realty Income Corporation (NYSE:O)’s high-quality portfolio continues to support the health of its balance sheet. In the first quarter of 2024, the company’s occupancy remained steady at 98.6%. It achieved a rent capture rate of 104.3% on re-leased properties and generated a same-store rental revenue growth of 0.8%. Along with the steady occupancy rate, the company’s portfolio consists of single-tenant, net-leased properties, which mainly reduces its financial burden. The tenants are high-profile, stable businesses, including Wynn Resorts, Dollar General, and FedEx, ensuring a stable revenue stream.
In the first quarter of 2024, Realty Income Corporation (NYSE:O) reported revenue of $1.2 billion, which showed a 33.4% growth from the same period last year. The company’s cash position also remained strong, which can also be seen through its very strong dividend history. In Q1, its operating cash flow came in at $778.6 million, up from $731.2 million in the prior-year period. The company’s adjusted free cash flow jumped to over $206 million, from $141.4 million in Q1 2023. It is also a reliable option from a dividend point of view because being an REIT, the company is expected to return 90% of its net income to shareholders through dividends in order to avoid paying income tax on its operational profits.
As per Insider Monkey’s database of Q1 2024, 25 hedge funds held stakes in Realty Income Corporation (NYSE:O), compared with 27 in the previous quarter. These stakes are worth over $250.5 million in total. With over 1.4 million shares, AEW Capital Management was the company’s leading stakeholder in Q1.
Overall O ranks 2nd on our list of the best dividend aristocrats ranked by yield. You can visit Dividend Aristocrats Ranked By Yield: Top 10 to see the other dividend stocks that are on hedge funds’ radar. While we acknowledge the potential of O as an investment, our conviction lies in the belief that some deeply undervalued dividend stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for a deeply undervalued dividend stock that is more promising than O but that trades at less than 7 times its earnings and yields nearly 10%, check out our report about the dirt cheap dividend stock.
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Disclosure: None. This article is originally published at Insider Monkey.