Realty Income: A 3% Dividend Increase For ‘The Monthly Dividend Company’

Summary

  • Realty Income increases its monthly dividend to $0.189 per share, or $2.268 per year.
  • This represents a 3.0% boost compared to last month and the largest dividend increase since early 2013.
  • At current prices, Realty Income yields 4.3%.

Realty Income (NYSE:O) rewarded its shareholders with a sizeable dividend increase to start off 2015. The company just announced a dividend of $0.189 per share for the month of February 2015, an increase of 3.04% compared to the January 2015 dividend of $0.1834167 per share. Realty Income’s annualized dividend is now $2.268 per share which equates to a yield of 4.3% at current prices.

That Realty Income would increase its dividend is not entirely unexpected. The company, after all, has boosted its dividend 79 times since its 1994 listing on the NYSE. However, the size of the increase is unexpected. Over the past few quarters, the company has only offered token increases in the dividend.

Indeed, for all of 2014, Realty Income’s dividend was $2.201 per share, less than 1% higher compared to the 2013 dividend of $2.186 per share. Compared to 2014, the Realty Income’s 2015 dividend is up 3.75%. This is the first sizable increase in the dividend since late 2012/ early 2013 when the company took over American Realty Capital Trust.

In addition, I was expecting a modest boost to Realty Income dividend. As I noted in the linked article, Realty Income’s dividend payout ratio (based on FFO) was around 85%, below the historically average 90% of FFO.

Using the midpoint Realty Income’s initial 2015 FFO guidance of $2.67 to $2.72, ($2.70 per share) and AFFO of $2.66 to $2.71 ($2.69 per share), the payout ratio for the year is still ~84%. This leaves plenty of room for future incremental quarterly dividend increases.

Conclusion
Realty Income remains a good pick for dividend income. While the stock is undoubtedly pricey, trading at around 19.50x 2015 FFO, it is a high quality name which deserves a premium valuation. The fundamentals are rock-solid, with a 98.3% occupancy rate, locked in rent increases in the 1.5% per year range, a diverse tenant base, an investment grade rating, etc. Realty Income is as blue-chip a triple-net REIT you can buy.

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