Realty Income's Financial Conservatism Sets the Stage for Continued Dividend Growth
Realty Income has paid uninterrupted dividends for over 50 years and has achieved dividend aristocrat status with nearly 30 years of annual payout growth.
The diversified retail REIT owns thousands of properties spread across the U.S. in prime locations and has achieved stellar occupancy rates that have never dipped below 96%, even during the financial crisis and pandemic.
Most of the A- rated property owner's tenants have a service, non-discretionary, or low price point element to their business. These tenants are seemingly better positioned to survive a variety of economic conditions and more effectively compete with the continued rise of internet retailers.
None of the firm's largest tenants (Walgreens, 7-Eleven, Dollar General, FedEx, and Dollar Tree) or industries (convenience, grocery, drug, and dollar stores) account for more than 6% and 12% of rent, respectively.
This diversified and stable strategy has helped the REIT generate steady earnings growth and has led to a decade-low payout ratio that suggests a reliable payout.
Source: Simply Safe Dividends
In recognition of the firm's sustained high occupancy, diversified portfolio, and history of financial conservatism, including a consistently healthy payout ratio, we are upgrading Realty Income's Dividend Safety Score within our Safe bucket from 70 to 80.
The REIT looks well-positioned to ride out worsening economic conditions while continuing its trend of low- to mid-single-digit dividend raises.
