In a market full of noise and volatility, Realty Income (O), a dependable dividend-paying real estate investment trust (REIT), offers stability and consistency. It has established a reputation for dependable, consistent returns and a business model geared toward long-term stability. The stock is down slightly in the year to date and is outperforming the S&P 500 Index ($SPX). Let’s find out why Realty Income deserves to be on your radar.
Realty Income: The Monthly Dividend Company
Realty Income’s entire business model is based on owning and leasing commercial properties, specifically freestanding, single-tenant retail and industrial buildings, and earning a rental income in exchange. Realty Income’s business model is secure due to its diverse global client base. This includes well-known retail and logistics names such as Walmart (WMT), CVS Health (CVS), FedEx (FDX), Amazon (AMZN), Tesco (TSCDY), and Walgreens Boots Alliance (WBA), among others. This diversification across geography and industry ensures that Realty Income is not overly reliant on any single tenant or sector, which is a critical strength in uncertain times.
What truly differentiates Realty Income is its monthly dividend. Most dividend-paying companies pay out cash quarterly. In its 56 years of operation, the company has paid 656 monthly dividend payments, earning it the nickname “The Monthly Dividend Company.” Its dividend yield hovers around 6.1%, higher than the real estate sector’s average of 4.5%. In March, the company raised its monthly cash dividend to $0.2685 per share from $0.2680. This was the company’s 130th dividend increase since its New York Stock Exchange listing in 1994.
What’s more, Realty Income has earned the title of a Dividend Aristocrat, having increased its dividend for the last 30 years in a row.
Rock-Solid Financial Structure
Realty Income’s rock-solid financial structure keeps the dividend train running regardless of market conditions. The company consistently maintains occupancy rates of more than 98%. Tenants sign long-term leases that last around 9.3 years, with built-in rent escalators. Furthermore, the leases require tenants to cover property-related expenses such as taxes, maintenance fees, and insurance, among others. Consumer staples, pharmacies, and convenience stores are tenants that thrive in all economic climates, making Realty Income more resilient than many competitors.
The REIT’s payout is determined using adjusted funds from operations (AFFO), which is a more accurate measure of cash flow than traditional earnings used for a non-REIT. Realty Income consistently maintains a dividend payout ratio that is about 75.6% of AFFO, ensuring that it does not overextend itself while also retaining funds for growth strategies.
In the fourth quarter, Realty Income’s total revenue of $1.34 billion increased by 25% year-over-year. AFFO per share of $1.05 represented a 4% increase from Q4 2023.
For the full year 2024, total revenue of $5.27 billion increased 29.5% year-over-year. AFFO increased by 4.8%, reaching $4.19 per share. Management highlighted that in 2024, Realty Income’s annual AFFO per share increased for the 14th year in a row. Furthermore, the board of directors approved a $2 billion share repurchase program, showcasing confidence in the company’s future prospects.
Looking ahead, the company expects AFFO to be between $4.22 and $4.28 per share, a 1.4% increase over 2024.
Is O Stock a Buy on Wall Street?
Overall, Wall Street rates Realty Income stock as a “Moderate Buy.” Out of the 23 analysts who cover the stock, five rate it a “Strong Buy,” one a “Moderate Buy,” and 17 a “Hold.” The average target price for the stock is $60.89, 13% higher than current levels. The Street-high estimate of $65.50 implies a nearly 24% increase over the next 12 months.
With a portfolio designed to weather economic storms, a track record of dividend growth, and an expanding global footprint, Realty Income is the type of stock that allows you to sleep well at night while still receiving a monthly check. For long-term investors looking for consistent monthly income, strong management, and conservative financials, Realty Income is an appealing option.
