For the better part of 2024, Realty Income, with a yield of 0.97%, left investors feeling let down. The stock’s performance was lackluster, dropping as much as 11.5% by the middle of April. However, the real estate investment trust (REIT) is no longer seen as a letdown.
Since the beginning of July, Realty Income’s shares have surged nearly 17%, suggesting this might just be the start of a positive trend. Below are three compelling reasons to consider investing in Realty Income stock without delay.
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1. Enticing Dividend
A discussion on purchasing Realty Income stock wouldn’t be complete without mentioning its attractive dividend program, which stands out in the market.
Firstly, Realty Income offers a monthly dividend instead of the typical quarterly payout, even trademarking itself as “The Monthly Dividend Company.” This monthly distribution is an appealing feature for those seeking regular income.
Secondly, the dividend is notably generous, with a forward yield of 5.16%. Such a robust yield requires only modest share price appreciation to offer market-beating returns.
Thirdly, the REIT has consistently increased its dividend for 29 straight years. These aren’t minor increases either; since its New York Stock Exchange debut in 1994, Realty Income has boosted its dividend at a compound annual growth rate (CAGR) of 4.3%.
2. Unwavering Dependability
Realty Income’s consistent dividend growth highlights another critical reason to invest: its reliability. With 55 years of business experience, the company has navigated numerous recessions and global crises, emerging stronger each time.
A key factor in this dependability is its diversified portfolio, consisting of over 1,550 clients across 90 industries. The company estimates that approximately 90% of its rental income is resilient to economic downturns or unaffected by e-commerce pressures. Furthermore, around 36% of its rent comes from clients with investment-grade credit ratings.
In terms of credit standing, Realty Income is robust, with Moody’s assigning an A3 credit rating and S&P an A- rating, both indicating medium investment grade with a low default risk.
Realty Income has achieved positive earnings-per-share growth in 27 of the past 28 years. Its stock has grown at a CAGR of 13.5% since 1994, with remarkably low volatility, having a beta of just 0.5 against the S&P 500 since its NYSE listing.
3. Promising Growth Opportunities
Lastly, Realty Income boasts significant growth potential. In the short term, the Federal Reserve’s expected interest rate cut in September could boost the stock’s performance, as REITs typically benefit from declining interest rates. However, long-term growth prospects are even more compelling.
The U.S. total addressable market for Realty Income is $5.4 trillion, with opportunities in retail, consumer-centric medical, and industrial properties. Data centers, in particular, present a lucrative growth avenue.
The REIT’s prospects are even greater in Europe, where the total addressable market is $8.5 trillion, including $2.6 trillion in the U.K. alone. Achieving similar market penetration in Europe as in the U.S. could propel Realty Income’s enterprise value by 11 times.
Whether Realty Income can fully exploit these opportunities remains to be seen. However, an average annual adjusted funds from operations (AFFO) growth of around 10% over the long term seems attainable. In my view, investors’ total returns should align well with this AFFO growth.
Summary:
Realty Income faced challenges in early 2024 but has since shown significant potential with a nearly 17% stock surge. The investment appeal lies in its attractive monthly dividends, reliable performance, and promising growth opportunities, particularly in Europe. With a strong credit rating and a diversified portfolio, Realty Income is well-positioned for long-term success.
