Realty Income Corporation (O) needs no introduction; this REIT has trademarked itself as "The Monthly Dividend Company" and has a stellar track record of 27 consecutive years of dividend increases, notes Rida Morwa, income specialist and editor of High Dividend Opportunities.
With the recent sell-off, it is a great option for those who are looking for a high-quality dividend growth pick. The Dividend Aristocrat maintains a massive portfolio of 11,427 properties with triple-net lease arrangements with over 1,125 clients.
Notably, ~94% of O's tenants represent industries resilient to economic uncertainties, and these services primarily rely on their physical location to pursue operations.
In addition, 43% of O's rent comes from investment-grade clients, and their portfolio has a weighted average lease term of 8.8 years. At the end of Q2, the REIT reported occupancy was 98.9%, its highest in over ten years, indicating strength in the company's fundamentals.
As a business, O thrives during recessions. They strategically make acquisitions at higher cap rates to expand their asset base and improve the value proposition to shareholders.
Hence, it is no surprise that the company is increasing its 2022 acquisitions guidance to over $6 billion. O's balance sheet carries A3/A- credit ratings by Moody's and S&P, with 93% fixed-rate debt with staggered maturity. This is a tremendous benefit during an economic climate with rising rates. The REIT has a healthy weighted average term to maturity of notes and bonds of 7.6 years.
O is a monthly dividend payer, the monthly $0.248/share payment represents a 5.1% annualized yield. During the Q2 conference call, management reaffirmed the 2022 adjusted funds from operations (AFFO) per share guidance of $3.84 to $3.97, representing nearly 9% annual growth at the mid-point. The midpoint of this AFFO guidance indicates that the dividend comes at a healthy payout ratio of 76%.
O is well-positioned to grow its dividend annually and maintain its Dividend Aristocrat status. The market sell-off presents an attractive opportunity to lock in a 5.1% yield from this dividend grower. We expect the REIT to continue strategic acquisitions in these weak market conditions and reward shareholders with growing income over the longer term.
