Why This Company Is “O” So Rewarding

Ryan is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

The United States’ unemployment rate is again on the rise. The entire European Union is on the brink of falling into recession, as the International Monetary Fund attempts to present a response that will keep the continent currency alive. The Chinese Government is realizing their growth trend is downward sloping, and is attempting to make a “soft landing” from their glory days. Even Wall Street traders do not believe in the recent rally that has brought the Dow Jones Industrial Average within striking distances of magnificent all-time highs. So it is of no surprise that the hunt for safe reliable yield has become more savage and intense than ever. One company being sought out by the mob is Realty Income Corporation (NYSE: O).

Priding itself in its 43 year track record of providing dependable monthly income, Realty has more than proved its worth over the past 10 years, rising 148.96%, over a period in which S&P 500 has only squeezed out a 52.54% gain. So why is this company “O” so rewarding?

<img src="/media/images/user_13174/nyse-o-4190-018-043-realty-income-corp_large.png" />
 

Tremendous Fundamentals

In 2009, Realty Income Corp reported earnings per share of $1.03. In 2014, the average analyst consensus believes the company will derive $1.18 from its business operations. This represents a modest increase of 14.56% over 5 years, a solid gain for a company focused on capital preservation. Based on these statistics, the company’s compound annual growth rate (CAGR) is 2.76%, a very modest and sustainable rate. While Realty Income’s growth is not spectacular, it is predictable and modest, ideal for the long-term investor. Additionally, the company currently pays out an annual dividend of $1.80, which at the current price, puts Realty’s dividend as yielding 4.19%. Realty Income Corporation has grown its dividend 94.8% since 1994, and is strongly anticipated to continue this trend into the foreseeable future. By 2014, the street projects the company’s dividend to reach $1.92, which at the current price would put Realty’s dividend as yielding 4.60%. From this we can see Realty Income Corporations’ financial strength, sustainable growth rate, and ever-growing high-yielding dividend.

The chart below displays Realty Income Corporation’s sales, operating profit, net income, net margin, operating margin, earnings per share, dividend, and rate of dividend (the percentage of net income that is paid out in the dividend) over the coming years.

<img src="http://www.4-traders.com/reuters_charts/3,2,605,375,Realty+Income+Corp/A0AC5/2/Income+Statement+Evolution.png" />
 

<img src="http://www.4-traders.com/reuters_charts/5,2,360,280,Realty+Income+Corp/A0AC5/2/EPS+Dividend.png" />
 

Simplistic Business Model

Realty Income is a real estate investment company that derives income from its vast portfolio of over 2,700 properties. They purchase commercial properties for cash, and secure long-term leases. From these long-term leases Realty Income collects its income, subtracts expenses, and then uses the remaining money to pay out its dividends to its shareholders. The average remaining lease length is 11.1 years, giving extreme predictably to its shareholders. Realty has one of the highest occupancy rates in the industry, at 97.3%, as the vast majority of their customers are chains with several stores nationwide. There customers include Taco Bell, Jiffy Lube, National Tire & Battery, Petsmart, FedEx, and many more. Using the income provided to them by their leasers, they pay out their huge dividends monthly. A portion of the money also is used to acquire new properties that will become the income stream of tomorrow. Just in the six months ending in 6/30/12, Realty acquired 147 new properties. These additional properties allow the company to grow the dividend they pay out to their investors, as the chart below displays.

<img src="http://www.realtyincome.com/images/invest/overlay_HistoricalDividendIncreaseRecord.jpg" />
 

In conclusion, Realty Income Corporation has a simplistic business model that allows the company to be highly predicable and pay out massive dividends to their shareholders.

Who Is the King of Real Estate?

Compared to some of Realty’s most prominent competitors, such as: Kimco Realty Corporation (NYSE: KIM), Inland Real Estate Corporation (NYSE: IRC), Retail Properties of America (NYSE: RPAI), and Retail Opportunity Investments (NASDAQ: ROIC), Realty Income compares relatively favorably.

<table> <tbody> <tr> <td> </td> <td> <p>2009-2014 EPS Growth</p> </td> <td> <p>Current Dividend Yield</p> </td> <td> <p>2009-2014 Dividend Growth</p> </td> </tr> <tr> <td> <p>O</p> </td> <td> <p>14.56%</p> </td> <td> <p>4.19%</p> </td> <td> <p>12.28%</p> </td> </tr> <tr> <td> <p>KIM</p> </td> <td> <p>386.67%</p> </td> <td> <p>3.76%</p> </td> <td> <p>-23.64%</p> </td> </tr> <tr> <td> <p>IRC</p> </td> <td> <p>-190.00%</p> </td> <td> <p>6.86%</p> </td> <td> <p>-17.39%</p> </td> </tr> <tr> <td> <p>RPAI</p> </td> <td> <p>-47.83%</p> </td> <td> <p>6.32%</p> </td> <td> <p>5.97%</p> </td> </tr> <tr> <td> <p>ROIC</p> </td> <td> <p>800.00%</p> </td> <td> <p>4.48%</p> </td> <td> <p>205.56%</p> </td> </tr> <tr> <td> </td> <td> </td> <td> </td> <td> </td> </tr> <tr> <td> </td> <td> <p>Price/Earnings Ratio</p> </td> <td> <p>Price/Earnings/Growth Ratio</p> </td> <td> <p>Net Profit Margin</p> </td> </tr> <tr> <td> <p>O</p> </td> <td> <p>46.19</p> </td> <td> <p>4.79</p> </td> <td> <p>35.89%</p> </td> </tr> <tr> <td> <p>KIM</p> </td> <td> <p>57.92</p> </td> <td> <p>2.01</p> </td> <td> <p>17.48%</p> </td> </tr> <tr> <td> <p>IRC</p> </td> <td> <p>-64.00</p> </td> <td> <p>0.00</p> </td> <td> <p>-5.37%</p> </td> </tr> <tr> <td> <p>RPAI</p> </td> <td> <p>-31.79</p> </td> <td> <p>0.00</p> </td> <td> <p>0.00%</p> </td> </tr> <tr> <td> <p>ROIC</p> </td> <td> <p>70.16</p> </td> <td> <p>1.29</p> </td> <td> <p>18.66%</p> </td> </tr> </tbody> </table>

In terms of growth, Realty Income is the only company with sizeable and sustainable growth. All companies pay out relatively large dividends, with Inland possessing the largest dividend, and Retail Opportunity possessing the fastest growing dividend. In the fundamental ratio comparison, Realty Income possesses the most reasonable multiple. When growth is taken into account, Retail Opportunity is the most reasonably priced. In the net profit margin comparison, Realty Income stands out to the upside, while Inland stands out to the downside.

The Foolish Bottom Line

In a world of extreme volatilely, uncertainty, and fear, it is extremely comforting to know that inside your portfolio sits a company that has paid out 504 consecutive monthly dividends. Realty Income is a company with incredible financial strength and a sustainable growth rate. Realty has an incredible track record of paying out and increasing dividends over the past 43 years. Additionally, Realty Income stands out in its industry as a leader in growth consistency. The company’s business model is simple, effective, and efficient. The foolish bottom line is that Realty Income Corporation is an incredible addition to any long-term portfolio.

This chart displays the incredible long-term channel that Realty Income has been trapped in since 1995.

<img src="/media/images/user_13174/o_large.png" />
       


makinmoney2424 has no positions in the stocks mentioned above. The Motley Fool owns shares of Retail Opportunity Investments. Motley Fool newsletter services recommend Retail Opportunity Investments. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.

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