Here's How Realty Income Can Afford its 5.2% Dividend Yield
The past year has been difficult for the real estate investment trust (REIT) sector. Rising interest rates have raised financing costs for these companies. Because REITs often trade on the basis of dividend yield, determining the sustainability of the dividend is paramount. Realty Income (NYSE: O) is a classic triple-net lease with a 5.2% dividend yield. Is it sustainable?
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Realty Income is a REIT that focuses on developing properties under an unusual lease structure. Most leases are gross leases, where the tenant is responsible for paying the monthly rent and little else. Realty Income uses a structure called a triple-net lease, where the tenant absorbs most of the operating costs of the property, including taxes, insurance, and maintenance. These leases generally last a long time and contain automatic escalators. Triple-net leases are also difficult (and expensive) to break.
Source Fool.com
