As other REITs continue to grapple with low occupancy rates, Realty Income Corp (NYSE:O) continues to generate significant rental income. The REIT owns single-tenant properties in key locations that have high occupancy ratio of more than 98%.
The diversified nature of the Realty Income Corporation allows it to enjoy a regular stream of cash flows from high-grade tenants. In addition, the company enters into triple net lease agreements, whereby tenants are required to pay maintenance, taxes and insurance costs with a lease term of 15 years.
Realty Income Corporation generates a good chunk of its rental income from its top 20 tenants that feature the likes of Walgreens, FedEx and Dollar General. The fact that all these tenants have investment grading in the market, all but accords the REIT a reliable and sustainable revenue stream.
The REIT is already planning as it looks to strengthen and affirm its revenue stream through acquisition of new properties.
The real estate investment trust had an impressive year on the financial front, depicted by revenue and earnings growth. Revenue for the fourth quarter ended December 31, 2017, came in at $310.7 million, an 8% increase from 2016 levels. Full-year revenue increased 10.2% to $1.216 billion.
Net income available to shareholders was $310.5 million or $1.10 a share, compared to $288.5 million paid in 2016. Funds from Operations decreased 14.4% to $171 million, compared to $199.8 million in 2016.
Same-store rent on 4,254 properties, for the quarter, was up by 1% to 244.9 million and increased by 1% for the full year to $973.1 million, compared to $963.3 million for 2016.
Realty Income Corporation expects Funds from Operations in 2018 to range between $3.11 and $3.19 million based on net income of between $1.21 and $1.29 per share.
Realty Income Corporation as a Dividend Play
Amidst underperformance in the stock market, Realty Income Corporation has continued to reward its investors with generous dividends. For 48 years, the company’s payouts have increased steadily. A 4.7% compound average annual dividend growth since 1994 makes the stock a perfect fit for income-focused investors.
Consistency on dividend payments can only be attributed to the company’s strong portfolio of tenants that affirm a reliable stream of rental income.
Despite the underperformance, relative to the overall market, Realty Income Corporation is still an exciting pick in the REIT sector. The company’s ability to generate substantial lease revenue to sustain and support growing dividends is one of the reasons it remains a top pick in the space.
A diversified portfolio made up of properties in good locations is another attribute that continues to shield the REIT from the economic cycles in the industry. As other REITs continue to feel the effects of e-commerce proliferation, Realty Income corporation remains well protected given its lease agreement with investment grade tenants.
The stock is down by 15% for the year, which presents a unique buying opportunity for income-focused investors given the generous dividends up for grabs. The company boasts of an annual payout of $2.63 a share which equals a yield of 5.28%.