I just now can’t get enough of it by Real estate income (NYSE:O) this year. I’ve bought shares of the leading real estate investment trust (REIT) several times, including in the past week. The main reason is the high-yielding and steadily rising dividend.
Considering the REIT‘S current value proposition, I’ll probably buy more shares every chance I get. This is why I continue to expand my position.
Realty Income is a great dividend stock. The REIT makes monthly dividend payments (it calls itself The Monthly Dividend Company), making it ideal for those who like to generate passive income. Meanwhile, the payout currently yields around 5.7%, that is several times higher than the S&P500 index‘s return (1.2%).
That well-above-average income stream is active an extremely sustainable basis. Realty Income owns an increasingly diversified real estate portfolio, supported by long-term investment net leases with a lot of the the world’s best companies. These leases require tenants to cover all operating expenses, including routine maintenance, property taxes, and title insurance. As a result, the REIT collects stable rental income.
The company pays approximately 75% of its adjusted funds from operations (FFO) in dividends, that is a conservative level for a REIT. That makes it possible to hold on A meaningful quantity of cash to finance new investments. Realty Income also has an elite balance sheet. It is one of only eight REITs in the S&P 500 with two credit ratings of A3/A- or better. These factors put the REIT’s dividend on rock-solid footing.
Realty Income recently announced its 128th dividend increase since going public in 1994 (it has increased its payment for 109 consecutive quarters and 30 consecutive years). During that thirty-year period, the payout has increased at a compound annual rate of 4.2%.
The REIT has been able to steadily increase its dividend as it has delivered remarkably resilient earnings growth. It has delivered positive adjusted FFO per share growth in 27 years of his 28 years as a listed company. General, it has grown its adjusted FFO at a compound annual rate of 5%.
It is in an excellent position to continue growing at low to mid-single digits. The existing portfolio should deliver annual adjusted FFO growth of approximately 1% per share through contractual rent increases.
In the meantime, the company has sufficient financial capacity to continue making new investments to expand its portfolio. Billions of dollars in new real estate investments are made every year. Considering that there is still a huge growth path ahead there is nearly $14 trillion in commercial real estate suitable for net leases in the US and Europe. Realty Income has increased its ability to grow by adding new investment sectors, including expanding into gaming and data centers, entering new European countries and launching lending and private capital investment platforms.
Shares of Realty Income are currently trading at a good price. They were recently about 15% below their 52-week high and about 30% below their pre-pandemic peak. As the REIT’s earnings rise, its valuation has fallen.
It trades at about 15 times its value enterprise value Unpleasant EBITDA, that is below the REIT sector average of over 16x. That is also well below the over 24x valuation multiple of asset managers. The company should justify a higher valuation as it grows private capital management platform.
Realty Income checks all the boxes for me. It pays a high-yield dividend, backed by strong financials. It’s also growing at a solid clip, and that should continue. Furthermore, it is trading at an attractive valuation, which is becoming increasingly difficult to find these days while the market continues its advance. These factors are why I continue to add to my position in the elite REIT and will likely continue to do so as long as the stock trades at a good price.
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Matt DiLallo has positions in Realty Income. The Motley Fool holds positions in and recommends Realty Income. The Motley Fool has a disclosure policy.
Why I’ll Keep Buying More of This Great, High-Yield Dividend Growth Stock (and Will Likely Add to It in 2025) was originally published by The Motley Fool
