From Strong to Steady: Realty Income's Projection Shift Highlights Its Income Focus
Realty Income (NYSE: O) is a tortoise. It makes up for that as an investment by having a lofty 5.6% dividend yield. To put that yield into perspective, it is well over four-and-a-half times the size of the 1.2% yield on offer from the S&P 500 index. If you own Realty Income, make sure you own it for the right reasons. These are the big ones.Realty Income is a net lease real estate investment trust (REIT), which means its tenants are responsible for most of the operating costs of the properties they occupy. The key for net lease transactions is that they are really financing-like deals. The company selling the asset needs cash, and the most cost-effective way to raise cash is to jettison a property and instantly lease it back. This way, it maintains control of a vital asset and gets the cash it needs.In this situation, Realty Income will generally have a lower cost of capital than the company from which it is buying a property. That allows the REIT to do the deal, making a profit on the spread between its cost of capital and the rent it generates from the asset.Continue reading
Realty Income (NYSE: O) is a tortoise. It makes up for that as an investment by having a lofty 5.6% dividend yield. To put that yield into perspective, it is well over four-and-a-half times the size of the 1.2% yield on offer from the S&P 500 index. If you own Realty Income, make sure you own it for the right reasons. These are the big ones.
Realty Income is a net lease real estate investment trust (REIT), which means its tenants are responsible for most of the operating costs of the properties they occupy. The key for net lease transactions is that they are really financing-like deals. The company selling the asset needs cash, and the most cost-effective way to raise cash is to jettison a property and instantly lease it back. This way, it maintains control of a vital asset and gets the cash it needs.
In this situation, Realty Income will generally have a lower cost of capital than the company from which it is buying a property. That allows the REIT to do the deal, making a profit on the spread between its cost of capital and the rent it generates from the asset.
