A Sound REIT Investment
In addition to reporting funds from operations for the second quarter that beat estimates by a penny, CEO Tom Lewis said Realty Income surpassed its midyear acquisition target and has raised its target for the year. That comes on top of a dividend increase announced in June. Realty Income has now increased its dividend for 63 straight quarters.
"In our recent quarter, dividends per share to shareholders were up 24.5% compared to the same period a year ago. The positive results from the operations of our portfolio, coupled with a robust acquisitions environment, leads us to be optimistic relative continued dividend growth," Lewis told me in a phone interview.
RBC Capital Markets analyst Rich Moore added: "Realty Income has a very, very, very stable operating platform with a nice steady revenue stream of income (internal growth) and a strong ability to grow externally with over $2 trillion of opportunities."
In the second quarter, Realty Income acquired 190 properties with a total investment of $738.1 million -- $867 million year-to-date -- and Lewis raised the target for the year to $1.25 billion
Funds from operations for the quarter were 60 cents a share, topping estimates by a penny. The company increased its occupancy rate by 50 basis points from the first quarter to 98.2%, getting closer to its all-time high of 98.8% reached in the first quarter of 2007.
Realty Income shares closed Thursday at $44.36 for a current dividend yield of 4.91%. After the stock hit an all-time high of $55 on May 21, it fell 20% as Federal Reserve Chairman Ben Bernanke said the Fed may slow down its bond purchases. That raised the prospect of higher interest rates, hurting the stocks of real estate owners like Realty Income.
The price to funds from operations multiple is 18.7x, placing the REIT in a fair valuation range. S&P recently upgraded Realty Income to BBB+ and the company's $1 billion acquisition facility has no current balance.
Realty Income's durable dividend and consistent earnings make it a dependable REIT and what I consider it to be a "sleep well at night" investment.
The author owns shares of Realty Income.
This article was written by an independent contributor, separate from TheStreet's regular news coverage.