Realty Income Corporation (NYSE:O) is the most popular real estate investment trust (REIT) on Seeking Alpha, with over 223,000 followers. Despite its popularity, the company’s share price has recently plummeted, reaching a historically low valuation.
So, is this a historic buying opportunity or should you sell before further losses? Let’s examine the company’s fundamentals, valuation, and latest news to make an informed decision.
Realty Income: Q2 2023 Update – Buy or Sell?
Realty Income has a remarkable track record in the REIT market, with nearly 30 consecutive years of growing dividends and an average annual return of 15% since its IPO in 1994. Its $47 billion portfolio of “class A” net lease properties, including well-known tenants like Walmart and CVS, generates stable rental income with long-term leases and annual rent increases.
The company also boasts a strong balance sheet and investment-grade rating, enabling access to affordable capital for property acquisitions. With its excellent reputation and loyal following, Realty Income is highly regarded in the REIT world.
However, recent challenges have emerged as Realty Income seeks growth outside its core competency. By diversifying into other property sectors and geographies, the company risks diluting the quality of its portfolio and facing valuation compression.
Realty Income’s Hidden Issue
A key concern for Realty Income is its increasing size and appetite for ventures beyond its expertise. While these new investments have yielded positive results thus far, there is a limit to how much Realty Income can expand without compromising its focus and portfolio quality.
Historically, specialized REITs have outperformed diversified ones, leading some investors to question Realty Income’s strategic choices. Only time will tell if these ventures pay off or if they ultimately hinder the company’s growth and valuation.
Despite the challenges, I believe Realty Income still offers opportunities. The recent share price decline has boosted the dividend yield to 5.5%, near its highest level in years. Additionally, potential future interest rate decreases may further enhance Realty Income’s valuation multiple.
While I recognize that other REITs may present better investment prospects, conservative investors seeking safe monthly dividend income could find Realty Income attractive at its current levels. It may not be perfect, but with careful consideration of the associated risks, owning Realty Income shares can yield solid returns over time.