Best of the Best Monthly Dividend Stocks: Realty Income Corp (O) (The Monthly Dividend Company)

Both the graphical representation and the CAGR table above are based on returns with all dividends reinvested.  Imagine what you would have today if you had gotten a 17.8% return for 22 years. I think it’s clear that Realty Income’s past performance has been stellar. But, before we conclude that Realty Income really is a great company, we should look at its capital structure.

Realty Income Corp (NYSE:O) maintains a BBB+ investment grade credit rating. If you have looked at the REIT sector in detail, you know there are not many REITs with investment grade credit. Realty Income has a very solid and conservative balance sheet. The chart below shows the capital structure and the debt metrics for the company.

Source:  Realty Income Website

The debt metrics are very solid and the majority of Realty Income’s capital structure is in equity. This is the kind of company in which I want to be invested.

What about Realty Income’s current valuation?

Realty Income’s Current Valuation

I have owned Realty Income off and on for a number of years. The most recent period was September 2015 to the end of March 2016. The short answer to the question of why I sold Realty Income is that I had a very nice gain in a short period of time and Realty Income had become overvalued.

I sold at $62.50 for a 38% gain in just over 6 months. Realty Income went even higher and hit $64.50 before falling back down to about $59 today. I’ve got Realty Income on my watch list but I believe it remains overvalued today.  Let us look at some numbers.

Source:  Author

Today, the yield of Realty Income is a little low and the Price/FFO is a little high; maybe more than a little high.  Realty Income’s yield is about 4% and its Price/FFO is about 21. Based on my past experience with this REIT, my recommended entry point would be a yield of about 5% and Price/FFO of 16. Will we get there?