Realty Income Has Paid 676 Consecutive Monthly Dividends. Here’s How Its Earnings Results Fit the Bigger Picture.

There's no question that Realty Income (NYSE:O) is my favorite dividend stock. I appreciate the consistency and convenience of a monthly dividend, and I love the company's commitment to dividend growth.

And now that Realty Income reported its third-quarter earnings report on Nov. 2, I see no reason to change my mind.

The real estate investment trust recently declared its 676th consecutive monthly dividend, a track record that stretches back more than 56 years. But the real story isn't how long the company has been paying dividends. It's how Realty Income continues to generate the cash needed to keep those payments coming.

Image source: The Motley Fool.

Its third-quarter earnings report offers some encouraging evidence.

Realty Income delivers another solid quarter

Realty Income's third-quarter revenue was $1.62 billion, up 10.3% from a year ago. Net income was $403.9 million and $0.43 per share versus $315.8 million and $0.35 per share last year.

But for mortgage REIT investors, adjusted funds from operations (AFFO) may be even more important. This metric adjusts earnings for items such as real estate depreciation, providing a better picture of the cash-generating performance that supports dividends.

Realty Income's AFFO was up 3.7% year over year to $1.12 per share, up 4 cents a share from a year ago. That might not sound particularly exciting, especially when compared with the growth rates of high-flying technology stocks. But Realty Income isn't supposed to be exciting. It's supposed to produce dependable income, and that's exactly what its business continues to do.

Management raised its AFFO guidance for the full year to a range of $4.45 and $4.46 per share, while reaffirming its $10 billion investment target for 2026.

The secret is a remarkably durable business

Realty Income's business model is fairly straightforward. The company owns about 15,500 commercial properties and leases them to tenants, typically under long-term net leases that require tenants to cover many property-related expenses. It has clients in every U.S. state, the U.K., and eight other European countries.

Its diversified client base spans nearly 100 industries, including grocery stores, convenience stores, home improvement retailers, pharmacies, and other businesses that serve everyday consumer needs. Dollar General, its largest tenant, accounts for just 3.3% of annualized contractual rent, while 7-Eleven accounts for another 3%.

Realty Income has also demonstrated remarkable consistency in maintaining occupancy across its properties. Its year-end occupancy rate hasn't fallen below 96% since 1992, including during the financial crisis and the COVID-19 pandemic.

Meanwhile, the company continues to expand. Realty Income invested $2.6 billion during the third quarter, with its proportionate share totaling $2.2 billion. Those investments had an initial weighted-average cash yield of 6.8%.

The company also expanded its private capital business into Europe through a joint venture with KKR. These arrangements can provide an additional source of capital for investments without relying exclusively on Realty Income's balance sheet.

Why Realty Income remains my favorite dividend stock

The appeal of Realty Income has never been the prospect of explosive share-price appreciation. Investors can find plenty of other companies offering faster growth.

What makes Realty Income special is the combination of recurring rental income, a diversified property portfolio, and a long history of rewarding shareholders.

During the third quarter, the company paid $0.813 per share in dividends, compared with $1.12 in AFFO. That's a payout ratio of roughly 73%, leaving room to fund other needs while continuing to reward shareholders.

And that's why the latest earnings report fits so neatly into the bigger picture.

Realty Income doesn't need spectacular earnings growth to deliver on its investment proposition. It needs dependable tenants, disciplined acquisitions, and enough cash flow to keep increasing its dividend over time.

After 676 consecutive monthly dividends, that approach has a pretty convincing track record. And it's why Realty Income remains my favorite dividend stock.

Patrick Sanders has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Dollar General, KKR, and Realty Income. The Motley Fool has a disclosure policy.