Realty Income Has Raised Its Dividend Through Every Market Crash Since 1997. Should Income Investors Still Buy It?

Investors tend to have an easy time liking stocks during bull markets, but that story often changes during bear markets, especially those that include a market crash. Ultimately, how a stock endures such an event is key to its long-term success.

One company well positioned to endure such an event is not necessarily a household name, but the real estate investment trust's (REIT) properties are fixtures across the U.S. and in eight European countries. If you're looking for safety and a high dividend return, you will likely be well served by Realty Income (NYSE: O). Here's why.

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Why Realty Income?

Having gone public in 1994, the company's first financial crisis was in 1997, when the Asian financial crisis spilled over into U.S. markets. It also survived the longer-lasting 2000 tech bust and the 2008 financial crisis through its stable real estate business.

The company leases single-tenant, net-leased properties. Under the terms of these agreements, the tenants pay the maintenance, insurance, and taxes, leaving Realty Income with a steady revenue stream on its nearly 15,600 properties.

It has attracted numerous well-known clients, including Home Depot, Dollar Tree, and Wynn Resorts. While these companies' revenues could fall during market crashes, they are likely to maintain rent payments, bolstering Realty Income's occupancy rate of almost 99%.

The state of its dividend

As a real estate company, Realty Income is sensitive to interest rates. The 10-year Treasury just hit a 24-year high, and that factor may have contributed to the about 18% drop from its March high.

Nonetheless, it has typically maintained profit growth and expanded its real estate portfolios across a variety of interest rate environments. Such strength has bolstered its reputation as the "Monthly Dividend Company," a moniker it has trademarked. It has maintained and increased its payout since 1994.

Realty Income last hiked its dividend in August, taking its annual payout to almost $3.26 per share. At current prices, that amounts to a yield of around 5.9%, far above the 1.1% S&P 500 average.

Moreover, it easily covers its dividend costs. Realty Income earned $4.27 per share over the trailing 12 months in funds from operations (FFO) income. FFO income is a measure of a company's free cash flow, and the fact that it generates that cash amid rising interest rates suggests the company can continue to periodically increase its payout.

Additionally, the valuation is favorable if you know how to look at it. The 41 P/E ratio may appear high. Still, when comparing the current stock price to FFO, the price-to-FFO ratio is only about 13. That valuation suggests Realty Income stock is a bargain many investors may be overlooking.

Investing in Realty Income

Realty Income stock is likely an excellent choice for income investors.

Admittedly, rising interest rates and the P/E ratio may weigh on the stock, and the stock price action may not make it suitable for growth investors.

However, the real estate orientation and its well-established client base shield it from most of the direct effects of market crashes. That means its ability to pay and increase its generous dividend should remain intact regardless of the market's overall behavior.

Will Healy has positions in Realty Income. The Motley Fool has positions in and recommends Home Depot and Realty Income. The Motley Fool has a disclosure policy.