Realty Income Dividend Analysis

Realty Income is a real estate investment fund (REIT) that went public in 1994. Since it’s a REIT, they receive a favorable tax status to provide dividends. It currently boasts a 187.630% payout ratio with a dividend yield of 4.91%. It is one of three REITS that is part of the S&P 500 Dividend Aristocrats index.

Fun Fact: Realty Income trademarked the phrase “The Monthly Dividend Company”


Realty Income was founded in 1969 by William E. Clark and Evelyn J. Clark. In the early days of $O, the founders decided that the goal for realty income was to lease real estate to stores for long term-leases. The founders envisioned a real estate trust that would purchase properties by using low-cost capital and would focus on stores that needed long term leases. Their first acquisition came in 1970, where they acquired a single Taco Bell. In 1994, Realty Income took the next step in developing their business by going public, since then their REIT receives cash flow from over 6,500 properties throughout the United States, Puerto Rico, and the United Kingdom.

Essential Years in Realty Income History 

1969: Realty Income is founded by William Clark and Evelyn Clark 

1970: First property investment property in Taco Bell

1994: Realty Income goes public under the ticker $O 

2011: $1 billion in annual property acquisition 

2013: Acquisition of American Realty Capital Trust 

2016: Achieved $1 billion in yearly rent revenue 

2020: Joined S&P 500 Dividend Aristocrats 

Business Model 

Realty Income primary objectives are to acquire real estate that they can rent long-term, usually 10-20 years. The leases that Realty Income specialized in are triple net leases, which are structured such that the tenant pays for all operating expenses associated with the property. Since triple net shifts liabilities from the landlord to the tenant, Realty Income can collect the rents without having to deal with monthly expenses associated with maintaining a property. Realty Income’s clients are well known recognizable brands such as Walgreens, 7-Eleven, Circle K, Kroger, Home Depot, and Walmart. Their top 20 tenants occupy 3,198 properties and make up 53.1% of Realty Income’s revenue. 

As a real estate company, consumer behavior and a sluggish economy are two factors that can severely impact growth. Since 2009 Realty Income  has diversified their portfolio to shield against any potential downturn. Their top 20 tenants are insulated from changing consumer behavior as they are part of three sectors that are not fungible: service/experiential, non-discretionary, and low price point. 2009 saw a mass amount of bankruptcies across the financial world, along with a tremendous change in consumer behavior.

Top 15 Tenants Comparison 2009 to 2020

At the end of 2009, Realty Income saw that their portfolio was highly dependent on companies that were susceptible to economic conditions and consumer behaviors. Some of the areas that Realty Income decided to divest from were casual dining, small-time convenience stores, and companies that had a below BBB rating. 

2009 Top 15 Tenants Statistics

Rent Revenue from Top 15 tenants: 53%

Investment Grade Tenants: 3.2%

#1 Industry: Restaurants

2009 showcased a considerable liability to Realty Income as they had a meager percentage of income coming from investment-grade companies, and their industry leaders depended on economic conditions. Changing the way their portfolio was diversified became a goal of Realty Income, and Q1 of 2020 exemplified their efforts in creating a better REIT portfolio.

2020 Top 15 Tenants Statistics

Rent Revenue from Top 15 tenants: 45.9%

Investment Grade Tenants: 28.5%

#1 Industry: Convenience Stores 

Their shift in investment strategy stabilized their portfolio and is now centered on companies that are rated by Moody’s, S&P, and other agencies, further allowing them to decrease their dependence on the top 15 tenants.

As we mentioned previously, Realty Income focuses on triple net leases. As of Q1 2020, Realty Income’s primary clients are core retail and tenants that utilize freestanding properties. Below is a breakdown of the economic sectors they cater to and the percentage of their income.

Realty Income Dividend Payout History

(Image Provided by the July 2020 Retail Investor Presentation)

COVID-19 Impact 

COVID-19 created a massive burden for landlords. As mass unemployment rocked the global economy, rents became an essential topic of discussion. Lockdowns that were implemented throughout the United States caused a considerable drop in consumer spending, with many retail stores staying closed for two months. Realty Income saw a slight decline in rents collected from their tenants in industries that got hit the hardest such as cinemas, childcare, and auto service. Nonetheless, Realty Income was able to receive 86% of their rents in June. Investment-grade tenants performed well as Realty Income was able to collect 98.9% of the rents from this sector of their portfolio. Movie theaters, health and fitness, restaurants, and automotive services were the hardest hit sectors of the economy, and 81% of them missed their June rent. The top four industries that sell essential goods paid their rent on time (99.7%), which is an excellent sign as these primary sectors make up 37% of Realty Income’s annualized rent.


Realty Income is one of three REITs that is part of the S&P 500 Dividend Aristocrat index. Its track record for dividend increases has been phenomenal. Starting from 1994, Realty Income has had 90 consecutive quarterly increases.

Sectors of Realty Income

After the 2008 financial crisis, Realty Income was able to shift its focus in the right direction. Their dividend growth has been steady across the years, and if all things stay the same or improve, we could be seeing a $2.796 dividend payout per share in 2020. A payout ratio of 187.630% may seem a bit high compared to the rest of the dividend aristocrats, but since they are labeled and taxed as a REIT, they get tax benefits to ensure that dividends can be paid to investors. 

( Payout Ratio Definition)

Another point that should be highlighted is that REIT dividends get taxed as regular income. Dividends do have their tax advantages, but with REIT, dividends are taxed as ordinary income 


Realty Income, since its inception and listing on the NYSE, has had a consistent dividend payout that has increased at a rate of 4.7% during the last ten years. Its business model has adapted very well to changing economic conditions. Even in an environment witha high entry cost and low yield, Realty Income has been able to change their portfolio and create a business model that yields above-average returns on their investments. Despite unfavorable economic conditions, the tenants that Realty Income caters to are well-established corporations that can withstand financial hardships themselves. The triple net leases allow Realty to shift significant liabilities away from their business model into the hands of their tenants. In the future, Realty will continue to acquire properties through their selective investment strategies, and with active portfolio management, the future of Realty Income seems to be bright. Their business model, and data support indicate growth in the future as well asa stable dividend payment schedule.

Written by: Armand Bogdan
Published on: Tuesday, July 21, 2020 2:00 PM

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