Dividend Increase | Realty Income (O)

Dividend | Dividend Growth | Financial Independence | Freedom | Passive Income
Getting a pay raise while sitting on the couch?  Sign me up!  Thanks Realty Income for the dividend increase!
There's an old Chinese proverb that says "the best time to plant a tree was 20 years ago, the next best time is now".  The reason for this is that it takes time for a tree to grow and prosper and for you to start reaping its benefits.  Dividend growth investing is much the same way.  It takes consistent saving and investing as well as time and patience to let the power of dividend growth take hold.

That's why one of my favorite things is when one of the companies I own decides to pay out more in dividends.  You mean I get a pay raise just for owning a small piece of a company?  Not going and doing R&D for new products or technology.  Not selling any products.  Not managing any employees or inventory.  Not making sales calls.  All I had to do was have the foresight to invest some of my savings in excellent companies.  

On September 14th, the Board of Directors at Realty Income approved an increase in the monthly payment from $0.2355 up to $0.236.  That's a very par for the course 0.21% increase.  Shares currently yield 4.15% based on the new annualized payout.  Realty Income is a Dividend Champion with 28 consecutive years of dividend growth.

The newly increased dividend will be payable October 15th to shareholders of record as of October 1st.

Realty Income is a bit of a different breed compared to most dividend growth stocks.  For starters, they pay monthly dividends.  Secondly, they also typically give one bigger raise in January and then announce 3-4 smaller raises throughout the year; although the larger January increase didn't come this year which is a bit of a concern.  Compared to the year ago period, the new dividend represents an increase of 0.9%.

Since I own 106.015 shares of Realty Income in my FI Portfolio, this raise increased my forward 12-month dividends by $0.64.  This is the 40th dividend increase I've received from Realty Income since initiating a position in July 2013 with total organic dividend growth since my purchase coming to 30.0%.

A full screen version of this chart can be found here.

Realty Income's dividend growth isn't something to get too excited about; however, I fully expect that dividend growth will come considering the company refers to itself as "The Monthly Dividend Company".  I'm also willing to accept lower dividend growth for shares that typically offer higher starting yields.

Since 1994 Realty Income's 1-year dividend growth rates have ranged from 0.9% to 21.2% with an average of 4.5% and a median of 3.4%.

Over the 23 rolling 5-year periods, Realty Income's annualized dividend growth rates have ranged from 2.6% to 7.4% with an average of 4.8% and a median of 4.3%.

Across the 18 rolling 10-year periods, annualized dividend growth has ranged from 4.0% to 6.2% with an average of 5.0% and a median of 5.0%.

Since Realty Income became a public company, dividend growth has regularly been in the 4-5% range over the longer term and I fully expect 3-5% in most years moving forward.

The 1-, 3-, 5- and 10-year rolling dividend growth rates since 1994 can be found in the following chart.  

A full screen version of this chart can be found here.

For dividend yield theory I consider the fair value range to be the forward dividend yield +/- 10% compared to the 5 year moving average, the under/over value area to be to between 10%-20% deviation from the average and significant over/under value are greater than a 20% deviation from the average.

A full screen version of this chart can be found here.

Realty Income's 5-year average forward dividend yield is 4.35% which corresponds to a share price of $65 based on the newly raised dividend.

I consider the fair value range based on dividend yield theory to be the 5-year moving average yield +/- 10%.  That gives a fair value range of $59 - $72.  With shares currently around $68 shares are on the upper end of the fair value range.

Wrap Up

This raise increased my forward dividends by $0.64 with me doing nothing.  That's right, absolutely nothing to contribute to their operations.  Based on my FI Portfolio's current yield of 2.27% this raise is like I invested an extra $28 in capital.  Except that I didn't!  One of the companies I own just decided to send more cash my way.  

That's how you can eventually reach the crossover point where your dividends received exceed your expenses.  That's DIVIDEND GROWTH INVESTING AT WORK!  The beauty of the dividend growth investing strategy is that you build up your dividends through fresh capital investment as well dividend increases from the companies you own.

I've now received 38 raises from the companies in my FI Portfolio increasing my forward-12 month dividends by $516.86.

My FI Portfolio's forward-12 month dividends are $8,731.19.  Including my FolioFirst portfolio's forward dividends of $178.65 brings my total taxable accounts dividends to $8,909.84.  My Roth IRA's forward 12-month dividends are $864.07.  My Rollover IRA's forward dividends are $3,913.21.  Across all accounts I can expect to receive $13,687.12 in dividends over the next year.

I've also started compiling dividend data on many of the companies that I own or would like to own.  Realty Income's can be found here which includes the dividend history (as far back as I can find without spending hours hunting it down), rolling dividend growth rates and dividend yield theory.  To see other companies that I've already gathered the data on you can check out the Dividend Companies page.  Check it out and let me know what you think.

Do you own shares of Realty Income?  Do you think it's realistic to expect annual dividend growth to climb back to the 4-5% area?

Please share your thoughts below.