This Incredible 5.4%-Yielding Dividend Stock Expects to Grow Even Faster This Year

Realty Income (NYSE: O) does an incredible job paying dividends. The diversified real estate investment trust (REIT) has declared 652 consecutive-monthly dividends and 108 straight quarterly-dividend increases. The company has raised its payout every year since it came public in 1994, growing it at a 4.3% compound annual rate.

The REIT is in an excellent position to continue increasing its dividend. That's evident from its recent third-quarter earnings report in which it boosted its growth guidance for the full year.

The growth continues

Realty Income continued its steady growth in Q3. The REIT reported $1.05 per share of adjusted funds from operations (FFO), a 2.9% increase from the prior-year period. That enabled it to increase its dividend by that same rate -- its 127th raise since coming public -- while maintaining a conservative 75.1% dividend-payout ratio.

Driving that growth are rising rents and accretive acquisitions. The REIT expects its same-store rental-growth rate to be around 1% this year, driven by contractual increases in existing leases and its ability to capture higher rents as legacy leases expire. Its rent-recapture rate has averaged 104.9% on units it has re-leased this year compared to the prior rents on those same properties.

Meanwhile, Realty Income continued to secure new investments. It acquired 82 properties during Q3 for $593.7 million. In addition, it invested $146.4 million across 87 development projects. That brought the company's year-to-date total to $2.1 billion across 300 investments, including acquisitions, development projects, and credit investments. On top of that, the REIT closed its needle-moving $9.3 billion merger with fellow REIT Spirit Realty earlier this year.

Pressing on the accelerator

Realty Income expects its investment volume to accelerate during Q4. The REIT anticipates its investment volume to be about $3.5 billion for the full year. That's an increase from its previous outlook of $3 billion, implying it will invest nearly $1.4 billion during Q4.

That increased investment volume gave the REIT the confidence to boost the low end of its adjusted FFO outlook. Realty Income now expects its adjusted FFO to be between $4.17 and $4.21 per share, a $0.02 increase at the low end. This guidance indicates that the REIT will grow its adjusted FFO by 4.8% from last year at the midpoint.

Improvements in the investment environment and a robust pipeline of investment opportunities support the company's higher outlook. CEO Sumit Roy commented in the earnings press release, "Looking ahead, Realty Income is pursuing a wide range of growth opportunities, including capital diversification initiatives to further enhance the reach and scale of our proven platform."

Realty Income has focused on diversifying its portfolio and enhancing its scale in recent years. Its acquisition of Spirit Realty accomplished both objectives by increasing its exposure to industrial real estate while bolstering its overall scale. Its growing scale has enabled the REIT to complete larger transactions, such as its deal with European sporting goods store operator Decathlon, which was one of the largest retail, single-tenant net-lease transactions in Europe. That deal also increased its diversification, adding several new European countries to its portfolio. Realty Income has also expanded into the gaming sector, made its first investment in the data-center space, and added a credit-investments platform in recent years. These investments are adding new sources of growth for the REIT.

The dividend should continue growing

Realty Income has been a very steady grower over the years. It expects to grow even faster than initially anticipated this year thanks to an improving investment environment and a strong pipeline of attractive opportunities. Meanwhile, it continues to take steps to enhance its growth, which bodes well for the future. The REIT is in an excellent position to continue growing its portfolio, cash flow, and dividend in the future. Add in its high yield (5.4% these days), and it's a very attractive, long-term investment.

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Matt DiLallo has positions in Realty Income. The Motley Fool has positions in and recommends Realty Income. The Motley Fool has a disclosure policy.