1. Monthly dividends. Realty Income pays cash dividends monthly, rather than quarterly. The predictability of our business model’s underlying revenue stream affords us the ability to deliver more frequent dividend payments to shareholders.
2. Growth. Since our public listing in 1994, our dividend has grown at a compound average annual growth rate of approximately 4.4%. We have increased our cash dividend for 98 consecutive quarters.
3. Stability. Dividend income we provide to our shareholders tends to be reliable since it is supported by long-term leases with tenants we have determined can be relied upon to make lease payments. Throughout our operating history, we have never decreased the amount of our regular monthly dividend payment.

Dividends are increased when and if declared by our Board of Directors after a review of our financial condition to determine whether or not a dividend increase is supported by increases in our cash flow. Historically, we have generally increased the dividend each quarter. However, we cannot guarantee that this trend will continue into the future.

Typically, investors look at a company’s dividend payout ratio to determine the sustainability of the dividend payment. This ratio is usually calculated based on net income. As a real estate company, there is a supplemental measure called “adjusted funds from operations”, or “AFFO”, that better reflects the company’s ability to generate cash flow to pay the dividend. Most research analysts use AFFO to assess dividend-paying ability. The AFFO calculation removes the non-cash impact of real estate depreciation and amortization and property sale gains or losses to net income, while adjusting for other unique revenue and expense items that are not pertinent to measuring ongoing operating performance.

Why net income is an improper measure to determine dividend-paying capacity:

• If net income is the only measure used to assess operating performance and dividend-paying ability for a real estate company, it appears that most of these companies pay out more in dividends than they earn. This is because depreciation expense is a significant non-cash charge for companies whose assets are primarily real estate.
• The net income calculation also includes non-recurring gains or losses from the sale of properties, which can cause net income to vary materially.

How depreciation works:

• Companies are typically required to estimate the “life” of their buildings and equipment and depreciate them over their estimated useful lives. Based on these estimated lives, they are required to record depreciation charges each period.
• Real estate assets, on the other hand, are long-lived, income-producing assets and, in many cases, may actually appreciate in value over time.
• This depreciation charge is usually the largest expense on the REIT income statement, particularly if the REIT (such as Realty Income) owns a very large real estate portfolio.

How we calculate AFFO:

You can learn more about how AFFO is calculated by viewing our Adjusted Funds from Operations calculation from our most recent earnings release.