Realty Income, the Monthly Dividend Company

Definitions of investment terms.

The definitions provided in this glossary have been obtained from various internet sources. This information is provided for convenience only. It is not intended to replace the expert advice of a financial advisor, nor should it be relied upon to make an investment decision.

Click on the letters shown below to browse through our alphabetized list of glossary terms and corresponding definitions.


Balance Sheet:

A balance sheet provides detailed information about a company's assets (things owned that have value), liabilities (amounts owed to others) and shareholders' equity (sometimes called net worth or capital). Assets-liabilities = net worth. If an investor wants to know how much debt a company has, he/she would look at the balance sheet.

Callable or Call Date:

This is the date the issuer of preferred stock or bonds may redeem those securities by buying them back at a pre-determined price.

Capital:

This term refers to cash, common stock, and bonds funding business activities. In the simplest terms, it refers to the financial resources available for use. The term is also used to discuss a company's "cost of capital," which means the costs associated with acquiring and holding this capital.

Credit Rating or Credit Quality:

This is an assessment of the creditworthiness of a corporation that is used to determine financing rates. Companies with poor credit have greater difficulty obtaining financing and typically pay more to access financing because of the increased risk of defaulting on financial obligations.

Current Yield:

This is a measure of the return on a preferred stock, common stock, or bonds on any given trading day. For a common stock or preferred stock, it is calculated by dividing the annual dividend amount by the share price. For a bond, it is calculated by dividing the annual interest payment per bond by the current bond price. An example would be: Realty Income's current yield on 2/28/11 is 4.8%.

Depreciation and Amortization:

This is a non-cash expense that is recorded on an income statement to allocate the costs of an asset over its useful life. How much is depreciated, or amortized, is based on the estimated useful life of the assets.

Dividend:

This is the distribution a company makes to shareholders and may be paid in cash or shares of stock. The amount to be paid is decided by the Board of Directors on a periodic basis and is generally paid quarterly (except in the case of Realty Income who pays the dividend monthly).

Dividend Yield:

This is a measurement that helps an investor determine the amount of cash return from dividends. It is expressed as a percentage of the share price. The formula to calculate this is: Annual dividend per share ÷ by share price.

Ex-dividend Date:

When a company declares a dividend, it sets a date when a shareholder must be registered or recorded as an owner of its stock in order to receive the dividend. For Realty Income, the ex-dividend date is two days before the record date. On that date, the stock price is typically adjusted to account for the dividend amount. If an investor wants to receive the next month's dividend from Realty Income, the investor needs to buy shares at least 3 business days prior to the record date, which is typically the first business day of the month.

Freestanding:

A building that is not attached to another structure and generally sits on its own piece of land. The properties that Realty Income owns are primarily freestanding buildings.

Adjusted Funds from Operations Available to Common Stockholders:

This term is also known as "AFFO" and is a non-GAAP (Generally Accepted Accounting Principles) measure to determine a real estate company's operating performance. It is calculated by adding back items such as depreciation and deducting property sales gains from net income available to common stockholders and adjusting for unique revenue and expense items that are not pertinent to ongoing operating performance. Real estate industry analysts use AFFO when analyzing the operating results of a public real estate company.

Income Statement:

An income statement shows how much revenue a company earned over a specific period of time. It also shows the costs and expenses associated with earning those revenues (i.e. running the business to generate revenue). The "bottom line" shows the company's "net profits", which is represented by net income available to common stockholders on the income statement. If an investor wants to know how expenses impact the amount of revenue available to pay dividends, they would examine the income statement.

Investment Grade Securities:

Investment grade securities are ranked in one of the four highest rating categories of nationally recognized rating agencies (e.g. between AAA and BBB by Standard & Poor's and Fitch Ratings, or between Aaa and Baa by Moody's Investors Services). Receiving an investment grade rating on a company's securities is important because the higher the credit rating the lower the financing costs due to the lower risk of default by the corporate issuer.

Leverage:

This is the practice of borrowing money to make an investment, with the idea that more investments can be made, and with the increased investment level, a higher net return may be earned than without the borrowings. Leverage can have a positive impact on a company's earnings, but it can also lead to liquidity problems if too much leverage is used, or the yield on the investment does not cover the borrowing costs.

Maturity or Maturity Date:

This term is typically associated with notes and bonds. It refers to the date on which a security will mature and the principal amount or face value of the security will be returned to the investor.

Market Capitalization or Equity Market Capitalization:

This is the market value of a company, determined by multiplying the price of its shares by the number of shares outstanding. The market cap of a company will tell its equity value.

Total Market Capitalization:

The total value of all of a company's outstanding securities (e.g. common stock, preferred stock, notes and bonds). The market capitalization of a company will tell you about its stock value, whereas the total market capitalization will tell you about its total capital value, including common stock, preferred stock, notes and bonds.

Notes and Bonds:

Notes typically refer to debt securities with an original maturity of 20 years or less. Securities with maturities 20 years or longer are referred to as bonds.

NYSE:

Stands for New York Stock Exchange and is the trading floor for many public companies. Information can be found at www.nyse.com. The NYSE is sometimes referred to as the "big board".

Payout Ratio:

This refers to the amount of dividends paid to shareholders divided by earnings, or FFO. It is a good indicator of a company's ability to cover its dividend payments.

Perpetual:

Refers to securities which have no stated maturity date that will remain outstanding until redeemed or called according to the provisions under which the security was issued, usually at the discretion of the corporate issuer.

Preferred Stock:

Is a type of stock that, 1) pays a fixed dividend and has priority over common stock in the payment of dividends and, 2) is senior in the case of a liquidation of a company. Generally, preferred shares carry no voting rights. They are more similar to bonds than to common stock.

Qualified Dividend:

A qualified dividend is a common or preferred stock that qualifies for the 15% tax rate provided for in the Tax Increase Prevention and Reconciliation Act of 2005 (until it "sunsets" or reverts to the provisions of prior law, beginning after December 31, 2012). In general, dividends paid by real estate companies are not eligible for the reduced tax rate.

Retained Earnings:

These are the earnings not paid out as dividends that are retained by a company and are reinvested in the company's business.

REIT:

Stands for "real estate investment trust" (pronounced "reet"). This is a federally approved tax structure for public companies that own real estate, which require a REIT to pay out at least 90% of its taxable income as dividends to shareholders. As long as the company pays out 100% of its taxable income, it does not pay federal income taxes. (See nareit.com for additional information about real estate investment trusts)

Record Date:

When a company declares a dividend, it sets a "record date" which is the date you must be a registered owner in order to receive the declared dividend.

Redeemable:

This means that a security may be redeemed or called under provisions specified in the prospectus (offering document). If an investment is called, that means that you will get the redemption price, which is typically the original offering price, on the redemption date.

Redemption Price:

This is the price of the security that the issuer must pay to the investor when it is redeemed. This price is set forth in the offering document (Prospectus).

SEC and EDGAR:

"SEC" stands for "United States Securities and Exchange Commission." The primary mission of the SEC is to protect investors and maintain the integrity of the securities markets. "EDGAR" stands for Electronic Data Gathering, Analysis and Retrieval, and is an electronic collection of information sent by publicly traded companies to the SEC. In 1933 the SEC was created to serve as a watchdog group for investors. EDGAR is a good source of information on public companies.

Ticker Symbol:

A ticker symbol is a series of one to five letters used to identify the security of a company. A company's ticker symbol is similar to a license plate on a car. It helps you to identify the owner.

Total Return:

A stock's dividend income plus share price appreciation, before taxes.

Yield:

Yield refers to the cash rate of return an investor may receive on an investment.

Yield on Cost:

This is the yield based on the current annual dividend amount calculated as a percentage of the original purchase price of the underlying shares. Some investors consider yield on cost to be a good gauge of long-term performance of a dividend-paying stock. For more information on Yield on Cost, visit our dividends page.

Sources: Investopedia.com, Wikipedia.com, banxquote.com, Wall Street Journal, nareit.com

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