Home Market News The Resilience of Realty Income: 5 Compelling Reasons to Invest Now

The Resilience of Realty Income: 5 Compelling Reasons to Invest Now

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The Resilience of Realty Income: 5 Compelling Reasons to Invest Now

Realty Income (NYSE: O) is a beacon of stability in the storm-tossed waters of the stock market, beckoning conservative income investors with the promise of steady returns. As one of the largest real estate investment trusts (REITs) globally, Realty Income boasts a tenant roster that reads like a who’s who of corporate giants including Walgreens, 7-Eleven, Dollar General, Dollar Tree, and Walmart. These retail behemoths, famed for their resistance to economic downturns, secure Realty Income’s cash flow lifeline.

Despite its stellar reputation, Realty Income’s stock price has endured a tumultuous 23% decline over the past two years, shaken by fears of rising interest rates and challenges faced by its top tenants. However, beneath the surface lies a hidden gem, waiting to be unearthed by savvy investors willing to see beyond the storm clouds.

Plants sprouting from stacks of coins by a cardboard house.

Image source: Getty Images

1. The Silver Lining of Interest Rates

The Federal Reserve’s looming interest rate cuts paint a rosy picture for Realty Income. In a landscape where high interest rates can deter property acquisitions and dampen dividend appeal, falling rates herald a golden era for the stalwart REIT. CEO Sumit Roy’s forward-looking remarks during the latest conference call hint at Realty Income’s readiness to dance to the tune of rate cuts, positioning itself favorably in the eyes of income-minded investors.

Furthermore, with a forward dividend yield pegged at 5.7%, surpassing the 10-year Treasury’s meager 4.2% yield, Realty Income stands tall as a lighthouse guiding income investors through treacherous seas back to its safe harbor.

2. Weathering the Storm of Store Closures

Fears over store closures at key tenants like Dollar General, Walgreens, and Dollar Tree may seem daunting at first glance. However, a closer look reveals that while these retailers plan to shutter hundreds of stores, the impact on Realty Income’s bottom line remains limited. With a nuanced approach to managing leases and gradual closures, Realty Income is well-equipped to weather the storm, buoyed by Dollar General’s bold expansion plans.

3. Fortified by High Occupancy and Steady Growth

Maintaining an impressive 98.6% occupancy rate, Realty Income’s track record speaks volumes. With a history of robust portfolio expansion and a resilient adjusted funds from operations (FFO) growth, the REIT has defied adversities, charting a steady rise even amidst the turbulent waters of the pandemic and inflationary pressures.

4. Dividend Growth Potential

With a legacy of uninterrupted monthly dividends since 1969 and a staggering 124 dividend hikes since its public debut, Realty Income showcases its commitment to reward investors. Boasting a modest payout ratio of 71% of free cash flow, the REIT stands poised to elevate its monthly dividends, making it an enticing prospect for dividend aficionados.

5. Seizing the Opportunity in Valuation

While Realty Income may appear steeply priced with a price-to-earnings ratio of 43, the underlying value story unfolds as a tale of undervaluation when viewed through the lens of FFO per share. Trading historically inexpensive at just 13 times adjusted FFO per share in 2023, Realty Income beckons investors to seize the moment and capitalize on the temporary market apprehensions.

Should you invest $1,000 in Realty Income right now?

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Leo Sun holds positions in Realty Income. The Motley Fool maintains positions in and recommends Realty Income and Walmart. The Motley Fool abides by a strict disclosure policy.

The thoughts and opinions expressed herein are solely those of the author and do not necessarily align with those of Nasdaq, Inc.