Meet a Dividend Growth Stock: Realty Income

Good morning and welcome to another edition of “Meet a Dividend Growth Stock.” In these posts I provide a brief introduction of a dividend growth stock and then provide some links to more research on them if you are interested. I always encourage you to do your own research prior to purchasing any stock for your portfolio.

Today I’m highlighting Realty Income (O), which call themselves  “The Monthly Dividend Paying Company.” And for good reason too. Realty has been paying out monthly dividends ever since the company was founded in 1969. It has been raising dividends for 20 years now, since going public in 1994. Since 1994 O has given shareholders a total annual return of 16.3% with reinvested dividends.

O is organized as a Real Estate Investment Trust (REIT) instead of the usual C-corporation which most major companies are organized as. Being a REIT allows O to not pay federal income taxes as long as it pays out 90% of their taxable income to their shareholders as dividends. This eliminates the normal “double taxation” that investors in C-corps experience who see their firm’s pay taxes on income and then have to pay taxes on the dividends they receive as well. The downside to this is that REIT dividends are not qualified, meaning you will pay taxes on your dividends at your normal income tax rate.

O has a very stable and diversified portfolio of rental properties with over 3800 located across 49 states and Puerto Rico. Their tenants operate primarily in the retail sector but are diversified over 47 industries and among 205 companies. Additionally it is the company’s goal to never let one tenant make up more than 10% of their annual rental revenue which they are currently accomplishing. O’s largest tenant, FedEx makes up 5.2% of revenues. Here are O’s top fifteen tenants based on percentage of annual rental revenue.

O's Top 15 Tenants-Pic File

Realty Income primarily owns free standing buildings in its portfolio of properties, meaning they are not attached to other buildings such as in the case of a mall. Looking at the list above, you can see plenty of examples of these types of buildings. Walgreens is a good example of this, they generally occupy a building alone, as opposed to being part of a larger mall. O also uses the net lease structure when leasing out their properties. This type of lease puts the responsibility of the majority of the property’s operating expenses such as taxes, maintenance, and insurance on the tenant which helps reduce risk to Realty Income.

Looking at the company’s dividend history, which is the main point of focus for us DGI’ers, Realty has paid out $2.9 billion in dividends over the course of their history and had 75 total increases since 1994. Their dividend growth rates currently stand at 21.2% (1 year), 4.8% (5 year), and 6.0% (10 year). The fact that the company pays out its dividends monthly helps you compound and grow your payouts quicker if you choose to automatically reinvest than if they paid a quarterly dividend.

In conclusion, Realty’s combination of high yield, solid long-term dividend growth history, and stable business model make it a great addition to a dividend growth portfolio. For more information of this dividend contender, please check out the following sites and articles. The firm’s site in particular provides a wealth of information to research the stock with and shows why they are such a shareholder friendly company.

Realty Income Company Website

How Do I Measure Realty Income’s Dividend Paying Ability?-Great explanation along with a copy of their income statement explaining how due to the high depreciation costs associated with owning so many properties, REIT’s such as O have to be analyzed according to Adjusted Funds From Operations as opposed to earnings when calculating their payout ratio.

Morningstar: O

Seeking Alpha: O

Yahoo Finance: O Dividend History

Why The Monthly Dividend Company Is An Enhanced Brand That Deserves A Premium Value by Brad Thomas @ Seeking Alpha. Brad is the resident expert on all things REIT’s over at Seeking Alpha. I highly suggest reading his informative and educational articles if you are interested in this type of investment.

Full Disclosure: I am long O and WMT. Please conduct your own research prior to buying any stock and do not take anything written here as a buy or sell recommendation for any stock listed.

What do you think of Realty Income as a dividend growth investment?


  1. Hi Mr. SFZ!
    I’m glad you made a post about Realty Income. I’m very interested in it, but I haven’t yet had time to properly get to know it. The article on Seeking Alpha you posted was actually a very thorough and informative one, thanks for that. I see O has a big weight in your portfolio, but how do you feel about the current valuation?
    Best wishes!

    1. Hi TDW,

      Glad you enjoyed the post and the link to Seeking Alpha. As evidenced by my portfolio weighting, I really like O and my purchases of it along with BP and RDSB last fall was to try to boost my overall portfolio yield and help jump start the dividend income so I could reinvest in some lower yielding, higher growing dividend payers.

      While not undervalued by any means, I consider O to be fairly valued today. Also its had quite a pullback from its 52 week high due to fears of rising interest rates here in the U.S. and may fall more in the future depending on if the Fed decides to raise rates so you may be able to get it at a better price here over the next year of so. My cost basis was between 39-41 per share so I wouldn’t mind adding more at these levels if I wasn’t so overweight. I’m comfortable not being perfectly diversified right now but I kinda went overboard buying O shares last year. I guess I just really like that monthly dividend, 😉

      Thanks for stopping by and commenting.

      Best wishes,


  2. I like this series of profiles you are doing on each company, SFZ. I was thinking about starting a new series on my blog as well – sort of as a validation step on what I am investing in and more importantly, the ‘why’.

    I am long O as well – started accumulating shares last Dec.


    1. Glad you liked them R2R. I’d like to do more analysis type posts in the future in addition to these introduction posts, they just take a lot of time to put together. I look forward to your series, always like reading someone’s analysis and opinion on a stock.

      Best wishes,

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