An Amazing Dividend-Paying Track Record – but Is It Safe?
Realty Income Corp. (NYSE: O) has paid a dividend for 556 straight months. If you don’t feel like doing the math, that’s more than 46 years.
It’s also raised its dividend for 76 quarters in a row beginning in 1997.
That’s one of the most impressive track records I’ve ever seen.
But just because a company has a glorious past, that doesn’t mean its future is secure.
Let’s figure out if Realty Income’s shareholders can count on the kind of payouts it has gotten used to.
The San Diego-based real estate investment trust has more than 4,700 commercial properties in 49 states and Puerto Rico.
For example, it rents out property to a Jack in the Box franchise in Portland, office space to GE Healthcare in Milwaukee and retail space to CVS in Dallas.
Realty Income is a cash-flow machine.
Funds from operations, a measure of cash flow used by REITs, has been steadily climbing since 2013.
It’s risen from $2.41 per share to an expected $3.07 next year. And this increase has allowed the company to raise its dividend too.
Last year, Realty Income paid out 82% of its cash flow in dividends. Next year, that’s projected to dip to 80%.
Generally, I like to see a company pay out 75% or less of its cash flow in dividends. That gives me confidence that it can continue to pay its dividend even if cash flow declines.
Realty Income’s payout ratio is only slightly above my threshold.
But, considering its growing cash flow and stellar track record, I have confidence that its executives can manage the dividend appropriately.
They have shown a strong commitment to the dividend and clearly understand the current 4.3% yield is important to shareholders.
When I evaluate the safety of a company’s dividend, track record is important, but the company’s ability to pay its dividend now and in the future is even more important.
When it comes to Realty Income’s dividend, investors have nothing to worry about in the next few years.
Dividend Safety Rating: A
If you have a stock whose dividend safety you’d like me to analyze, leave a comment with the ticker symbol.
Want to find out if your dividend is safe? Sign up for SafetyNet Pro and get immediate access to safety ratings on 1,000 dividend-paying stocks.