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Realty Income’s Dividend Track Record Unfazed by Its Weakened Theater Exposure

publication date: Feb 25, 2021
 | 
author/source: Brian Nelson, CFA

Image Source: Realty Income

By Brian Nelson, CFA

On Monday, February 22, Realty Income (O) reported solid fourth quarter results that beat expectations. For the quarter ending December 31, 2020, net income per share came in at $0.33, adjusted funds from operations per share was $0.84, and the REIT collected 93.6% of contractual rent, a decent percentage given that the troubled theater industry comprises ~5.6% of its annualized contractual rent. Regal Cinemas and AMC Entertainment (AMC) are top-10 customers.

Though Realty Income continues to face headwinds from its non-investment grade client tenant portfolio, the REIT continues to invest for the future, with over $1 billion allocated to properties and properties under development or expansion in the period. As with many of its REIT peers, Realty Income remains capital-market dependent, issuing hundreds of millions in senior unsecured notes and selling $655 million in stock during the period. Management had the following to say about full-year 2020 and its outlook for 2021:

Throughout 2020, we maintained a strong financial position and enhanced our financial flexibility, as we established a $1.0 billion commercial paper program and completed our debut public offering of Sterling-denominated senior unsecured notes. In total, we issued approximately $4.1 billion of long-term and permanent capital, which included record-low USD coupon rates in the REIT sector for the 5-year and 12-year unsecured notes issued in December 2020. Based on the strength of our financial position and investment pipeline, we project 2021 acquisition volume of over $3.25 billion, translating into 2021 AFFO per share guidance of $3.44 to $3.49.

We include Realty Income, “The Monthly Dividend Company,” in the Dividend Growth Newsletter portfolio, and the company’s long-term dividend growth track record has been fantastic, posting 90+ consecutive quarterly dividend increases. Though the REIT is capital-market dependent, its investment-grade corporate debt ratings (A3/A-) support its ability to tap the debt and equity markets when needed, as it has been doing during this COVID-19 crisis. Shares of Realty Income yield ~4.5% at the time of this writing. 

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Realty Income's 16-page Stock Report (pdf) >>

     Realty Income's Dividend Report (pdf) >>

Tickerized for O, SPG, SKT, NNN, MAC, KIM, TCO, RPT, WRI, AMC, EPR, CNK, MCS, CIDM, APO 

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Brian Nelson owns shares in SPY, SCHG, QQQ, and IWM. Some of the other securities written about in this article may be included in Valuentum's simulated newsletter portfolios. Contact Valuentum for more information about its editorial policies.

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