Realty Income (symbol: O) has a simpler business definition than any company I’ve studied over the past 39 years. Its mission: To Provide Dependable Monthly Dividends. Yup, that’s all it’s been doing since 1969.
Today the company is a mid-sized organization with a market capitalization of $4.6 billion. I guess I should clarify that. Its market value is mid-sized but it operates with less than 80 employees. It makes you wonder how a company with $420 million in rental income can do well with such a lean staff. It’s because they have a simple business strategy to back up their mission.
Realty Income owns 2,600 commercial properties in 49 states which it leases to more than 100 tenants. In many cases, these businesses previously owned their buildings but decided they had better ways to deploy their cash than invest it in real estate. Enter Realty Income. They purchase the property and lease it back to the business operator on a long-term (15-20 year) net lease. Under such an arrangement, the tenant pays operating expenses and sends its rent check to the new owner.
Realty keeps it simple in other ways. They always buy properties with cash – no messing with mortgages. Their strong balance sheet allows them to access banking institutions and the capital markets for funding. If they have to move quickly to purchase a property, they borrow on short-term lines of credit. After they own the real estate they turn around and fund it long-term by issuing new bonds and additional stock.
Careful property selection has led to better than 95% occupancy during the company’s entire existence. The stability of this cash flow has allowed management to consistently reward its stakeholders. Dividends have been increased annually since the corporation’s founding. Because rents are paid monthly, company leaders decided they could pass that cash flow along to shareholders on the same schedule. Management frequently refers to Realty Income as “the monthly dividend company”.
They also do a great job of communicating the company’s value proposition on their website — realtyincome.com. Take a visit – and be sure not to miss the videos!
This investment takes the form of a real estate investment trust (REIT). The REIT structure allows it to pass along income free of corporate income tax. There are other tax considerations that may be best reviewed with a tax professional before investing.
Now here comes the good part. The company’s dividend currently yields 5.0%. Its payout amount has been slightly increased in more than 50 consecutive quarters. Some of the company’s investors look at this investment as a substitute for lower-paying bonds and certificates of deposit. We view it as a conservative selection, with excellent qualities, above-average income, and the potential for modest capital appreciation.
With a company like this it’s easy to judge whether they stay true to their mission because it’s so clear. We only wish all corporations would be so transparent in explaining their core values.
For other related Insights please see “Dividend Stocks – The Power of Compounding” and “Do Bonds Still Serve a Purpose in Investment Portfolios?”
Important Consumer Disclosure
This newsletter is limited to the dissemination of general information pertaining to Investors Asset Management, Inc.’s (“IAM”) investment advisory services and general economic market conditions. This communication contains general information that is not suitable for everyone. The information contained herein should not be construed as personalized investment advice, and should not be considered as a solicitation to buy or sell any security or engage in a particular investment strategy. Information presented herein is subject to change without notice and should not be considered as a solicitation to buy or sell any security. Past performance is no guarantee of future results, and there is no guarantee that the views and opinions expressed in this newsletter will come to pass. Individual client needs, asset allocations, and investment strategies differ based on a variety of factors.
The Select List represents all of IAM’s recommendations as of December 27, 2011. Realty Income appears on IAM’s Select List of securities that the firm recommends. A list of all recommendations made by IAM within the immediately preceding one year is available upon request at no charge. IAM is under no obligation to hold any equity position for any time period, and the recommendations on the Select List are subject to change at any time without notice. The Select List should not be considered as personalized investment advice, and the securities information contained therein should not be construed as an endorsement, solicitation, or recommendation to purchase or sell any security. Different types of investments involve varying degrees of risk, and there can be no assurance that any specific investment on the Select List, or any recommendations in the future, will be profitable.
IAM is an SEC registered investment adviser with its principal place of business in the State of Texas. IAM and its representatives are in compliance with the current registration and notice filing requirements imposed upon registered investment advisers by those states in which IAM maintains clients. IAM may only transact business in those states in which it is noticed filed, or qualifies for an exemption or exclusion from notice filing requirements. Any subsequent, direct communication by IAM with a prospective client shall be conducted by a representative that is either registered or qualifies for an exemption or exclusion from registration in the state where the prospective client resides. For information pertaining to the registration status of IAM, please contact IAM or refer to the Investment Adviser Public Disclosure web site (www.adviserinfo.sec.gov). For additional information about IAM, including fees and services, send for our disclosure brochure as set forth on Form ADV using the contact information herein.
Investors Asset Management, Inc. 5000 Legacy Drive, Plano, TX 75024 www.iaminvest.com 972-985-7162













