3 Reasons to Consider Realty Income Stock in 2025

Globe and Mail

6 days ago

Key Points
Realty Income pays an attractive dividend.
The REIT has a lot of growth ahead.
It trades at a compelling valuation.
10 stocks we like better than Realty Income ›
Realty Income (NYSE: O) is the world's seventh largest real estate investment trust (REIT), with $59 billion of real estate across eight countries. The company's large and diversified portfolio generates stable and growing cash flow. That gives it money to pay dividends and invest in expanding its global real estate portfolio.
The REIT has a lot going for it these days. Here are three reasons to consider adding Realty Income to your portfolio this year.
A lucrative passive income stream
Realty Income's mission is "to deliver stockholders dependable monthly dividends that grow over time." The REIT has certainly been successful in achieving that goal over the years. It has paid 661 consecutive monthly dividends over the decades and increased its dividend payment 131 times since its public market listing in 1994. The company has raised its payout for 131 straight quarters and 30 consecutive years, delivering 4.2% compound annual dividend growth.
The REIT currently pays a monthly dividend of $0.269 per share, or $3.228 annually. At its recent share price of less than $60, Realty Income has a more than 5.5% dividend yield, several times higher than the S&P 500 's 1.2% yield. The REIT would turn every $100 into $5.50 of annual dividend income at that rate, compared to $1.20 in an S&P 500 index fund.
Realty Income supports its high dividend with a conservative financial profile. Its payout ratio is around 75% of adjusted funds from operations (FFO), enabling it to retain nearly $1 billion in excess free cash flow annually to invest in additional income-generating real estate. The company also has one of the REIT sector's 10 highest credit ratings. Its strong finances make its dividend highly sustainable.
A long growth runway
Realty Income has evolved over the years by steadily diversifying its portfolio. This strategy has opened the doors to new investment pools, expanding its total addressable market opportunity.
U.S. freestanding retail properties form the foundation of Realty Income's portfolio and represent a $2.6 trillion total addressable market opportunity. Its subsequent expansion into U.S. industrial properties added another $2 trillion, and its move into Europe opened an $8.5 trillion market. More recent investments in U.S. gaming and data centers increased its future investment opportunity by another $900 billion. Altogether, there's an estimated $14 trillion opportunity in its current focus areas.
Realty Income has also expanded into credit investments -- real estate loans and preferred equity -- and it's launching a private capital fund management platform. These new strategies are opening the doors to even more investment opportunities. With one of the strongest financial profiles in the REIT sector, Realty Income has ample capacity to continue expanding its portfolio, supporting earnings and dividend growth.
An attractive valuation
Realty Income's combination of a high dividend yield and steadily rising earnings has added up over the years. The company has routinely delivered an above-average total operational return -- that's dividend yield plus adjusted FFO-per-share growth rate -- compared with other REITs in the S&P 500. For example, over the past five years, Realty Income has produced a 9.7% average annual total operational return compared to 7.7% for other S&P 500 REITs. It has also outperformed other blue chip REITs over the past one- and three-year periods.
High-performing companies tend to trade at a premium valuation. However, that's not the case for Realty Income. The company currently trades for about 13 times its forward earnings. That's significantly cheaper than the 18 multiple of other REITs in the S&P 500. That low valuation is a big reason why Realty Income has such a high dividend yield.
Realty Income checks all the boxes
Realty Income offers investors an excellent income stream and a solid growth profile at a relatively low valuation. Those features position the REIT to produce attractive total returns in the future. It makes the company worthy of any investor's consideration.
Should you invest $1,000 in Realty Income right now?
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