Review of Realty Income--The Monthly Dividend Company

(Editor Rating)



Realty Income, a REIT best known as the Monthly Dividend Company, gives investors exposure to real estate. Here are its pros and cons.

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  • Payout Monthly Dividends
  • 80+ Consecutive Dividend Increases
  • Available in IRA's

Editor's note - You can trust the integrity of our balanced, independent financial advice. We may, however, receive compensation from the issuers of some products mentioned in this article. Opinions are the author's alone, and this content has not been provided by, reviewed, approved or endorsed by any advertiser.
Realty Income is a real estate investment trust (REIT) and an S&P 500 company. The company is dedicated to providing shareholders with dependable monthly income. They acquire and manage freestanding commercial properties that generate rental revenue under long-term, net lease agreements.

Based in San Diego, the company was founded in 1969, and has been publicly traded (NYSE: “O”) since 1994. The company manages more than 5,000 properties in 49 states and Puerto Rico, with a total cost basis value of $14.6 billion, generating well over $1 billion in annual revenue.

Monthly Dividend Payments. Unlike other publicly traded stocks, Realty Income pays its shareholders monthly dividends, rather than quarterly. This can be especially important for retirees, who are looking to create a predictable flow of investment income.

Realty Income Dividend and Dividend History

As of December 15, 2017, Realty Income’s stock traded at $57.40 per share. With a current dividend of $2.55 per share, the stock yields 4.40%. This is higher than the current dividend payout by the total REIT market (Equity REIT Index), as well as the S&P 500, Dow Jones Industrial stocks, and the 10 year US Treasury Note.

Since its founding in 1969, Realty Income has paid over $4.9 billion in dividends in 48 years. It has had huge dividend increases since the company went public in 1994, including 81 consecutive quarterly increases. Monthly dividends have been paid for 568 consecutive months, which is virtually every month since the company was founded.

The compound average annual dividend growth rate is about 4.6%. Annual dividend increases have been as follows:

Though Realty Income does not guarantee that they will increase their dividends every quarter, they have historically increased in each quarter.

Realty Income’s dividend paying capacity is different from that of typical publicly traded corporations. They do not pay dividends out of net income. Instead, they are paid out of adjusted funds from operations, or AFFO.

AFFO is more appropriate for real estate based investments, since they include a considerable amount of depreciation and amortization expenses. AFFO takes these non-cash expenses into consideration, as well as net property sale gains and losses. Dividends are then paid out of AFFO, rather than out of net income. As a result, dividends per share may be less than net income per share.

As a REIT, Realty Income must distribute 90% of their taxable income as dividends to shareholders. As well, a REIT is not required to pay federal income tax on profits before dividend distributions. This avoids double taxation. Dividends are taxable to shareholders at their individual tax rates.

Realty Income Total Return History

The table below compares the total return for Realty Income compared with both the Equity REIT Index (the general REIT market) and the S&P 500 for the past 10 years, and for the first three quarters of 2017.

YearRealty Income Total Return (Loss)Equity REIT Index Total Return (Loss)S&P 500 Total Return (Loss)
Through 9/30/201716.4%10.8%9.7%

Notice that Realty Income showed positive returns in eight of the past 10 years. It also outperformed the Equity REIT Index in eight of those 10 years. It even outperformed the red-hot S&P 500 index in seven of the past 10 years. Continuing to outperform both during the first three quarters of 2017.

Realty Income Total Return During the Financial Meltdown

Of particular interest in this data is the performance of Realty Income during the Financial Meltdown, which was centered in the real estate sector:

  • 2007: Realty Income turned a positive return, though it underperformed both indexes.
  • 2008: It sustained a loss, but outperformed both the Equity REIT Index and the S&P 500 index.
  • 2009: It underperformed both indexes, but still provided a return of nearly 20%.
  • 2010: As the economy and the real estate market improved, Realty Income provided a whopping total return of 38.6%, easily outperforming both indexes.

This isn’t to say that Realty Income is immune to economic downturns, particularly those that acutely affect real estate. But it does demonstrate that the company performed surprisingly well during the worst real estate crisis since World War II. For the 2007/2008 period, the total return was a modest loss. But in the 2009/2010 timeframe, Realty Income came roaring back, and provided healthy average returns over the four-year period.

Part of the reason why Realty Income is able to successfully weather real estate downturns is due to their very high portfolio occupancy rate. That rate has never been lower than 96%, including a low of 96.6% by the end of 2010. This owes to the more stable nature of tenants that Realty Income’s business model caters to. As well, the company maintains a very low debt to total market capitalization ratio. At just 26.5% (as of 9/30/2017), the ratio is low for a real estate based company.

More recently, Realty Income comfortably outperformed both indexes in 2014, 2015 in 2016.

This is one of those times when it’s important to remember that past performance does not guarantee future returns. But it’s reassuring all the same that Realty Income performed surprisingly well during a difficult time, and even since.

Types of Real Estate Realty Income Invests In

Realty Income invests primarily in retail stores (80%) providing nondiscretionary goods and services at low price points. These establishments include convenience stores, dollar stores, movie theaters, health and fitness facilities and drugstores. They represent businesses that tend to be resilient in different business cycles.

For nonretail properties, Realty Income targets industrial and distribution properties, leased to investment grade rated Fortune 1000 companies.

Triple-net Leases. Realty Income structures leases such that the tenant pays taxes, maintenance and insurance, in addition to monthly rent. This is done to reduce the company’s exposure to rising property operating expenses. It also keeps the cash flow predictable to support dividend payouts.

Predictable Rent Increases. Realty Income also builds predictable rent increases into their lease agreements. These increases raise same-store rental revenue by up to 2% per year. They are comprised of fixed rent increases, variable rate increases (a percentage of the tenant’s gross sales), or a mix of both methods.

Property Acquisition. While Realty Income purchases new properties from either cash on hand or from an acquisition credit facility, permanent funding comes from the proceeds of sales of common and preferred stock, or bond offerings. They seek to maintain a capital structure comprised of two-thirds equity and one third long-term, fixed-rate debt.

Below is a list of Realty Income’s Top 20 Tenants:


 Realty Income vs. a REIT Mutual Fund

If you want to invest in real estate through a REIT, why not choose a REIT mutual fund or ETF, rather than Realty Income, which represents a single REIT?

REIT mutual funds invest in both REITs and real estate related stocks. REIT ETFs invest solely in REITs, and generally try to match the REIT index, much as S&P 500 ETFs match that index.

For example, Vanguard REIT ETF (VNQ), perhaps most popular of all REIT ETFs, tracks the MSCI US REIT Index.

This can be an excellent way to diversify your REIT holdings. The disadvantage is that a REIT ETF can do no better than match the total REIT market. You’ll have no way to outperform it.

REIT ETFs and mutual funds have another disadvantage. Some REITs are partially or totally invested in residential real estate. This is typically in the form of large apartment complexes or apartment buildings. Residential real estate tends to be more volatile than commercial real estate, particularly during recessions.

There’s an additional limitation with REIT mutual funds. Since they are comprised of several REITs, they effectively match the market. And while the mix of real estate stocks provides an opportunity to outperform the general REIT market, there’s also substantial potential to lose money in a major real estate downturn.

For example, Realty Shares has an average compound annual rate of return of 16.4% since going public in 1994. The VNQ ETF cited above, has an average return of 7.11% over the past 10 years.

The advantage that Realty Income has over REIT mutual funds and ETF’s is that it has a long history of outperforming the overall REIT market. Its returns are also much more consistent than that of real estate stocks.

Realty Income Pros and Cons


  • Realty Income pays monthly dividends, rather than quarterly.
  • As a REIT, Realty Income’s net income avoids double taxation. 90% of net cash flow is passed on to shareholders, who pay tax based on their own tax situations.
  • Realty Income’s dividend yield is significantly higher than that of blue-chip stocks, as well as the 10-year US Treasury note. It is also higher than the Equity REIT Index for all REITs.
  • The company has provided 81 consecutive quarters of dividend increases.
  • Due to its investment methodology, Realty Income proved remarkably resilient during the Financial Meltdown, which specifically impacted real estate.
  • Realty Income’s stock has provided an average annual compound return of 16.4% since the company went public in 1994. This includes dividend income and stock price growth.
  • The stock is suitable for a taxable investment account, or a traditional or Roth IRA account.


  • None. Seriously. I couldn’t find any negatives.

Should You Invest with Realty Income?

Given the long, successful history of real estate, it makes sense to add the sector to your portfolio. Investing in real estate through property ownership, like rental property, is both capital-intensive and time-consuming. For most people, investing through REITs makes more sense.

You can hold a small percentage of your portfolio in REITs, as part of a balanced asset allocation.

Realty Income’s successful business model, and multi-decade track record of both paying and increasing dividends make it an excellent choice for your real estate allocation. The high total return as well as the above average dividend yield makes it suitable for both growth and income.

It should be particularly beneficial in a retirement plan. It can grow during the accumulation phase, while providing a generous regular income when retirement comes.

With a current dividend yield of 4.4%, the dividend income can fit perfectly within the safe withdrawal rate, usually determined to be about 4% per year. Meanwhile, growth in the share price should keep your investment position growing as the years pass.

You can purchase Realty Income stock either through a broker (NYSE: Symbol “O”), or through the Direct Stock Purchase and Dividend Reinvestment Plan administered by Wells Fargo Shareowner Services. The Direct Purchase Plan requires a one-time $5 setup fee, and a minimum investment of $1,500. Alternatively, you can fund the plan continuous through monthly purchases of $100.

Author Bio

Total Articles: 128
Since 2009, Kevin Mercadante has been sharing his journey from a washed-up mortgage loan officer emerging from the Financial Meltdown as a contract/self-employed “slash worker” – accountant/blogger/freelance blog writer – on He offers career strategies, from dealing with under-employment to transitioning into self-employment, and provides “Alt-retirement strategies” for the vast majority who won’t retire to the beach as millionaires.
Article comments
Tom G says:

Very interesting topic, can you compare REIT with BDC ( Business Development Companys)

Jason K says:

Invested in Realty Income Corp in a Roth IRA. However, due to fees I am wondering how often I should invest throughout the year and with which broker. Schwab $4.95 per trade? Perhaps on a quarterly investment/funding cycle. Thoughts?

Ty says:

If possible for your situation I would use a Robinhood since they offer commission free trading.

Joseph M. Crook says:

in the company literature for total return, it shows 16.9% for the last 23 years. In the footnotes (#2), it says that this figure does not include reinvestment of the dividend. So it looks like if a 4.4% average annual dividend, the compounded stock return (I assume including reinvestment of the stock gains)would be and additional 12.5%. Do I have this right? If so, why wouldn’t I throw all my retirement funds into this? I haven’t seen anything better anywhere.