How is Realty Income performance? Do I sell/buy, that has long had a place in my portfolio?
For those of you who don’t know Realty, it’s a type of real estate investment trust (REIT) that rents out its 15,600 properties to a variety of other companies. For example, the five largest customers don’t even account for 15% of the total rent it collects. No single customer accounts for more than 4%.
Among their largest customers are a number of well-known names in the US but also some well-known in Sweden.
Realty Income markets itself as “The monthly dividend company” and is in a sense the forefather of monthly dividends. It is probably at least the most well-known company in the genre. In total, it has paid 659 monthly dividends since it was listed and has increased its dividend 110 quarters in a row. The fact that it increases a little each quarter has become a bit of a hallmark.
In total, it has performed 13.4% in CAGR (average annual return) since 1994 when it was listed on the NYSE. The dividend has been increased by 4.3% annually. These are very good statistics, but unfortunately history only tells you what happened in the past.
Unfortunately, the stock has been underperforming for the past three years. Perhaps it’s not so surprising, as few real estate companies have performed really well since interest rates started to rise. The fact that real estate stocks haven’t recovered now that interest rates have started to stabilize sometimes surprises me.
But to get back to the company’s health, it’s not as bad as the price suggests. In their latest report, we read that their occupancy rate is 98.5% with an average contract term of 9.1 years. Not even during the brutal financial crisis or the pandemic did the occupancy rate dip below 96%. In other words, at most only 4% of the property portfolio was empty when it was at its worst.
If the dividend in Realty goes down, so does the company that has built its entire image of being one of the most stable dividend companies out there. Today, the dividend payout ratio is 75%. That’s actually lower than what it has been on average in recent years. Below 90% is recommended for REITs.
The debt level is at a good level and has not increased in the last 10 years. If anything, it has decreased slightly. What has increased, however, is the yield, which is currently 5.61% . The average for the last 5 years has been 4.78%.
In other words, I am eager to buy more now that the sector is quite undervalued. A company with high dividend yield and monthly dividends.
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