Investors looking to boost their dividend income can consider investing in Dividend Kings. These companies have raised their dividends for at least 50 consecutive years, which suggests their cash flows are resilient across market cycles. Moreover, a company with a stellar dividend growth record should have robust financials and solid growth prospects, enabling it to sustain dividend hikes over multiple decades.
One such Dividend King that pays you a monthly dividend is Realty Income (NYSE: O). Valued at a market cap of US$55 billion, Realty Income is part of the S&P 500 Index and aims to provide shareholders with dependable monthly income. Structured as a real estate investment trust, Realty Income’s monthly dividends are supported by the cash flow it generates from more than 15,000 real estate properties owned under long-term lease agreements.
It pays shareholders a monthly dividend of US$0.264 per share, which translates to a forward yield of almost 5%. Let’s see why I’m bullish on this Dividend King at its current valuation.
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The bull case for Realty Income stock
Realty Income owns more than 15,450 consumer-facing storefronts, which are rented out to tenants such as Walmart, 7-Eleven, Walgreens, Tractor Supply, and Dollar Tree. Basically, Realty Income is a diversified landlord that owns and operates income-generating properties across verticals such as retail, industrial, and gaming.
Realty Income ended Q2 with 335.3 million square feet of leasable space. These properties are net leased to quality tenants under long-term agreements. Realty’s net lease agreements cover operating costs such as maintenance, insurance and taxes, providing the company with earnings visibility.
The properties are leased out to 1,551 different clients across 90 industries. In Q2 2024, Realty Income reported an occupancy rate of 98.8%. Notably, even during the COVID-19 pandemic, its occupancy rate never fell below 97.9%, allowing it to maintain and even increase these payouts when its peers struggled.
A growing dividend
In 2024, the REIT expects to generate adjusted funds from operations (AFFO) between US$4.15 and US$4.21 per share. Given its annual dividend of US$3.16 per share, its payout ratio is around 75%, allowing the company to acquire additional properties, lower balance sheet debt, and raise dividends further.
Realty Income increased its annual dividend payout from US$1.04 per share in October 1999 to US$3.16 per share in October 2024, indicating a compounded annual growth rate of 4.5%. In the last two decades, Realty Income stock has returned 178%, which might seem like the REIT has significantly underperformed the broader markets. However, if we adjust for dividend reinvestments, total returns are closer to 700%.
Priced at 15.2 times forward AFFO, Realty Income stock trades at a reasonable multiple, making it a top investment choice right now. Additionally, with multiple interest rate cuts on the horizon, Realty Income should benefit from lower interest expenses and higher profit margins.
The Foolish takeaway
Realty Income is a blue-chip dividend-paying real estate investment trust that operates primarily in the U.S. So, it offers you exposure to the real estate sector in the world’s largest economy, which diversifies your portfolio and reduces overall risk.
