This REIT Posted Eight Dividend Increases in 2008.


Wednesday, January 28, 2009

Volume 3, Issue #6

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This REIT Raised Its Dividend Eight Times in 2008
-- By Carla Pasternak, Chief Investment Strategist, High-Yield Investing
Staples, Taco Bell, Hollywood video... How would you like to be their landlord? Well, now you can while earning a yield of 9.3%. Realty Income Corp owns more 2,355 properties in the U.S., specializing in leasing freestanding single tenant properties to middle and upper market chains that sell products consumers use everyday.

The company aims to create dependable lease revenue, so it can pay out reliable dividends. In the past 15 years, it's raised its dividend 53 times -- that's nearly once every quarter.
 

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This REIT Raised Its Dividend Eight Times in 2008
Promoting itself as "the monthly dividend company," Realty Income Corp is a REIT that owns 2,355 properties in 49 U.S. states. The company's 7.38% Cumulative Redeemable Preferred Stock (NYSE: O-PD, $19.81) were issued in May 2004 and are redeemable at the issuer's option at $25 on May 27, 2009. The preferreds are investment-grade, rated "BBB-" by S&P and "Baa2" by Moody.

O-PD pays $0.1536 a share monthly or $1.84375 yearly. At current prices, they are yielding 9.3% ($1.84375/$19.81). Although unlikely, if the company were to miss paying a dividend, the distributions would accrue since the shares are cumulative. Investors should note that the dividends are not eligible for the 15% tax rate.

Realty Income aims to create dependable lease revenue, so it can pay out reliable dividends. The company was founded in 1969 and listed on the NYSE in 1994. Realty has paid dividends on their common shares for 462 straight months and has boosted dividends on the common shares 53 times since 1994, including eight times in 2008.
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Realty specializes in leasing freestanding single tenant properties to middle and upper market chains that specialize in products consumers use everyday. Some of their clients include such names as Staples, Taco Bell and Hollywood video. The company operates on a "net lease" basis, which means the tenant is responsible for taxes, maintenance and insurance. Roughly 50% of revenue comes from five types of operations: restaurants, convenience stores, theatres, auto service outlets and child care centers.

Thus far in 2008, Realty Income's financial results have been stable. For the nine months ended September 30th, revenues increased from $214.2 to $247.5 million in part based on property acquisitions. Funds from Operations (FFO), a key financial measure for REITS, fell slightly from $1.41 to $1.38. FFO is net income, plus or minus gains from property sales, plus depreciation on real estate.

For the third quarter, FFO was $0.46 of which the company paid out $0.417 to common shareholders, or 90.6%. Their percentage of properties occupied was 96.9% down slightly from 98.3% in the third quarter of 2007.

The company's liquidity and stability were also adequate. Realty's interest coverage ratio was 2.21; a figure of 2.0 is considered reasonable. Their debt to market capitalization ratio, a key measure of long term solvency was 0.33. Any ratio under 0.35 is considered conservative for REITs. The company has only $20 million in debt that will come due through 2012.

Although the weighted average time of remaining leases for Realty is 12.1 years, the current difficult retail environment could still harm them. That's because if a retail chain were to go bankrupt if could legally cancel its leases. This situation in fact occurred to Realty early in 2008 when the restaurant chain Buffets -- Realty's single biggest tenant -- cancelled 12% of its leases and renegotiated lower rent payments on the remainder. Still, as pointed out, Realty was able to raise its common dividends despite this blow.

Realty Income provides a 9.3% yield. The stock is suitable for aggressive investors who believe the preferreds presently discount the weak retail environment. We plan to keep the stock on our radar screen pending an uptick in consumer confidence and spending. Investors who wish to lock in a 10% yield should buy O-PD with a limit price of $18.43.



Carla Pasternak
Chief Investment Strategist
High-Yield Investing


A Falling Dollar Can Mean Big Dividend Growth

A falling dollar is good news for U.S. investors who own foreign securities, but you don't necessarily have to look beyond America's borders to find opportunities. For instance, which of these commodities producers has taken advantage of the lower dollar and increased its quarterly dividend +44% in only three years?

A.) Endeavour Silver Corp (EXK)
B.) Intrepid Potash Inc. (IPI)
C.) New Gold Inc. (NGD)
D.) Royal Dutch Shell (RDS-A)
E.) Bunge Ltd. (BG)

(Please click on one the links above. After you make your choice, we'll show you the correct answer on our web site.)

Nathan Slaughter
Co-Editor
TopStockAnalysts Digest


Paul Tracy
Co-Editor
TopStockAnalysts Digest



 

 

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