Realty Income: A REIT With Consistency

The other day I wrote an article discussing several other REITs to add to a core portfolio. The two REITS I chose were American Capital Agency (AGNC) and Realty Income (O). Since I already own a core position in Annaly Capital Management (NLY) I was looking for another opportunity to add one more REIT to this mix.

My research and evaluation has led me to place Realty Income squarely into my core holdings, and to suggest it for your consideration to own as well.

Basic Fundamentals of O

1) PPS as of 11/15/2011: $33.39/share, dividend yield of 5.27% or $1.74/share annually, and an ESS research rating of neutral.

2) A recent quarterly gross margin of 62.06% vs an industry average of 39.02%.

3) Overall margins are among the highest of any REIT in the sector.

4) It met its latest quarterly earnings target of .27/share as reported on 10/27/2011.

Recent Analyst Upgrades (and one negative)

1) EVA Dimensions gave it an outperform with an overweight rating on 11/01.

2) Thomas White International gave it a buy with a most favorable rating on 11/09.

3) Ativo Research gave it a sell with a most unfavorable rating on 11/11.

Ativo research has the lowest accuracy rating by "Starmine" of virtually any independent research firm, a 1 on a scale of 1-100, while EVA has a 54 rating and Thomas White has a 33 rating.

In addition, several of Starmine's highest rated firms; Thomson Reuters, at 98, and Ford Equity, at 88, both gave O a neutral rating on 11/08 and 11/11 respectively.

The Real Story

I have selected Realty Income as a wonderful fit for myself, as well as many other investors, in a core dividend paying portfolio because of its remarkable track record of 497 CONSECUTIVE months of dividend payments, without missing a single beat, a modest 2.9% average yearly dividend growth rate over the past 5 years, as well as an amazing 63 dividend increases since it became listed on the NYSE in 1994.

Yes, the yield is "only" 5.27% which as you know is small in the world of REITs these days, however, its stability trumps that number by a wide margin, and given the fact that I personally already own a high flyer dividend REIT in my core, Annaly Capital Management, Realty Income seems to be a perfect addition.

Equally important to me is the market that O plays in within the world of REITs. It buys properties and writes long term leases (10-20 years) to financially sound retailer chain operations that have passed O's due diligence for lease stability. Annaly, on the other hand, plays in the MBS market as an mREIT, so their business agendas do not crossover whatsoever in that regard.

It also means that they do not face the same headwinds as the other mREITS out there in the MBS arena.

My Opinion

For dividend seeking investors who like consistency, and a lower level of risk, Realty Income could fit squarely into a core portfolio. Do your own research of course, however, I have decided that this stock belongs in MY portfolio, sooner rather than later. It goes ex-dividend on 12/01, payable on 12/15.

Disclosure: I am long NLY, O.