3 Reasons to Buy Realty Income Stock Like There’s No Tomorrow

At a quick glance, Realty Income (O) might not seem appealing due to several factors. Firstly, its current price is approximately 30% lower than its peak in February 2020, indicating it hasn’t bounced back from the pandemic-induced hurdles. Secondly, elevated interest rates seem to have dissuaded investors from acquiring this stock.

Despite its current appearance, a more detailed look at the stock could indicate potential gains rather than ongoing hardships. It might be wise for investors to act swiftly based on these three compelling factors.

1. Realty Income’s dividend

Realty Income Corporation is primarily recognized for its regular dividend payments, largely because it operates as a Real Estate Investment Trust (REIT). This type of business structure obliges it to distribute at least 90% of its earnings to its stockholders as dividends.

The company is known as “The Monthly Dividend Provider,” and it has consistently distributed a dividend each month starting from November 1994. This dividend has also risen at least once per year since then. During the last 12 months, the company has approved five enhancements to its dividend.

In simpler terms, each year, the payout increased by only about 2.3%, which was already quite substantial. This translates to an annual dividend of approximately $3.23 per share, resulting in a dividend return of nearly 5.6%. To give you an idea, the typical S&P 500 dividend yield is barely more than 1.2%.

It’s likely that Realty Income has sufficient resources to pay this dividend. Over the past year, the company has reported a Funds From Operations (FFO) income of approximately $4.12 per share. Since they paid out slightly more than $3.15 per share in dividends during this period, there remains money for potential share buybacks or property acquisitions.

2. The company’s property portfolio

Realty Income’s extensive property holdings, comprising about 15,600 individual tenant properties, underscore the company’s solid foundation. These properties are leased out on a net lease basis, which means the tenants themselves handle expenses such as insurance, maintenance, and taxes. This setup results in a more predictable income stream for the company.

Furthermore, it’s advantageous for the company that numerous businesses opt to rent their properties instead, thereby preserving funds for other ventures. These renters encompass established corporations like Walmart, Home Depot, and Tractor Supply, each boasting a history of stability and profitability. This consistency in performance keeps the likelihood of defaults minimal.

In the first quarter, these properties were almost fully occupied at a rate of 98.5%, indicating that most of them were generating income. This high occupancy rate has encouraged it to expand by acquiring other companies, and in 2024, it increased its holdings significantly by buying more than 2,000 properties from Spirit Realty. Furthermore, during Q1, Realty Income bought 50 properties and had 71 more in the development stage, showing that it is still expanding actively.

3. The opportunity in Realty Income stock

Currently, Realty Income is being traded at around a 30% discount compared to its peak price in early 2020. Similar to many other stocks, it initially dropped in value that year due to the pandemic. However, it rebounded after the initial dip until increasing interest rates halted its progress. Its recent attempts at recovery have been gradual.

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Despite increased interest expenses apparently reducing their profits, interest rates weren’t prohibitively high to prevent Realty Income from purchasing and constructing properties, including the mentioned acquisition of Spirit Realty.

Beyond this, Realty Income presents a relatively undervalued standing. At first glance, its P/E ratio of 53 might seem expensive. Yet, upon closer examination, its Funds From Operations (FFO) per share over the past year was $4.12, which means it’s priced at a more modest 14 times FFO. Given its low valuation and attractive dividend return, this stock could be an appealing choice for income-focused investors and potentially growth seekers as interest rates decrease.

Realty Income stock is a buy

Despite long-term struggles, Realty Income may be a surprisingly lucrative buy.

Over time, this stock consistently increases its dividends, leading to substantial income for investors, despite any difficulties it may encounter. Furthermore, its extensive real estate holdings have a low rate of default, making both the stock and its dividend very reliable. Lastly, the stock seems affordable when compared to its FFO (Funds From Operations) earnings.

High interest rates have been a burden for the company’s financial and stock market results. However, as concerns about high interest rates decrease, investors stand to gain from a substantial dividend payout. Moreover, they might also experience increased returns due to stock growth, as more investors recognize the worth of Realty Income.

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2025-07-20 10:24