Realty Income Is My Largest Stock Position, Here’s Why
Realty Income Corporation
Realty Income Corporation (O) is my largest stock holding for a number of reasons. It has a solid history of shareholder returns, with over 25 consecutive years of annual dividend raises, thereby making it a dividend aristocrat. This is attributed to its simplistic business model of owning net lease properties, in which the tenant is responsible for paying the property taxes, insurance, and maintenance.
An investment in Realty Income 25 years ago has outperformed the return of the S&P 500 by a wide margin. As seen below, a $10K investment in 1995 with dividends reinvested would now be worth $272K, equating to a 13.9% annual CAGR. This far surpasses the $103K ending value of the same investment in the S&P 500, with a 9.6% CAGR over the same timeframe.
Since its listing on the NYSE in 1994, the company has grown its portfolio from 630 to 6,525 properties today in 49 U.S. states, Puerto Rico, and the United Kingdom. As a sign of the company’s commitment to rewarding its shareholders with a steady stream of income, it trademarked itself as “The Monthly Dividend Company.”
While COVID-19 has pressured some of its tenants. Realty Income has proved its resilience with a 94% rent collection rate for the month of November 2020. Management has telegraphed its continued commitment to shareholders with a 0.2% dividend increase $0.2345 per month, representing the third increase this year. The dividend remains safe and is well covered with an 83% payout ratio, and comes with the backing of a strong balance sheet, and an A- credit rating from S&P. The dividend yield is currently a solid 4.5%. I find this to be attractive for its bond-like quality with a growth kicker.
What I also like about Realty Income is that it comes with a low beta score, with a beta value of just 0.64. As seen in the chart below, the stock’s beta actually trended much lower at below 0.25 before the effects of the pandemic set in, which disproportionately affected the stock. Prior to the current recession, I have seen patterns in which Realty Income’s stock price goes up during periods of volatility, which signals that the stock is traditionally viewed as a flight-to-safety play.
At the current price of $62.17 and a blended P/FFO of 18.8, I see Realty Income as a Buy for the steady and reliable income that it generates.
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Note: This article is for informational purposes only, and is not financial advice. Readers should perform due diligence prior to investing.
