Realty Income: Trick Or Treat

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Reit inscription connected a woody block. Real property concern spot concept. Company that owns, operates, oregon finances income-generating existent estate. Magnifying glass

Andrii Yalanskyi

It is harmless to accidental that Realty Income Corporation (NYSE:O) investors person had it unsmooth for a portion arsenic the banal is down

  • 12% successful the past month
  • 19% successful the past 6 months
  • 22% YTD
  • and 18% successful the past 12 months

But anyone speechmaking this nonfiction with involvement knows that Realty Income is not astir superior appreciation but astir income potential. After all, the institution doesn't person "income" successful its sanction oregon advertise itself arsenic "The Monthly Dividend Company®" for nothing. It is each astir income. Common consciousness says if you judge a dividend is reasonably safe, you'd alternatively bargain the underlying banal erstwhile it is acting anemic resulting successful a higher yield. And that precisely is the concern with Realty Income close now. I americium presenting 5 reasons wherefore I judge Realty Income is enticing here. Let us get into the details.

Realty Chart

Realty Chart (

Stock's Pedigree - Confidence Backed By Sustainable Execution

Let's commencement with the reasonably evident reason. Realty Income, the stock, has an enviable record. History should mean something, if not everything, erstwhile picking up a banal connected weakness.

  • Realty Income pays a monthly dividend, which shows the company's confidence successful quality to make continuous currency flow.
  • And it has paid that monthly dividend for 637 consecutive months oregon 53 afloat years, which shows the company's execution upon which the assurance is derived from.
  • The dividend has accrued for 103 consecutive quarters oregon 26 afloat years, which shows the company's sustainability and scalability.

Realty Highlights

Realty Highlights (

Business Pedigree - When Quality Rents Quality, Cash Follows

The company's assurance successful paying monthly and its execution implicit fractional a period is down to its concern strength. Drawing a parallel to Warren Buffett's absorption style "find the .400 hitters and past not archer them however to swing", Realty Income finds the champion plus classes and rents them retired to qualified tenants and does not person to archer them however to tally their business. When you person clients like Walgreens Boots Alliance, Inc. (WBA), Dollar General Corporation (DG), FedEx Corporation (FDX) and 7-Eleven being the cornerstones of your portfolio arsenic a landlord, you slumber good astatine night.

Hence, it is not a astonishment that Realty Income's lowest humanities year-end occupancy complaint of astir 97% is not lone awesome connected a stand-alone ground but is besides higher than the humanities median of different REITs successful the S&P 500. Let maine authorities that again for emphasis. Realty Income's lowest occupancy complaint is higher than the median occupancy complaint of different REITs successful the S&P 500.

Realty Clients

Realty Clients (

In the illustration below, the orangish bars correspond Realty Income portion the bluish bars correspond the remainder of the REITs successful S&P 500.

Realty Occupancy

Realty Occupancy (

When you person prime assets rented by prime tenants, currency follows. Realty Income's currency travel from operating activities has gone up much than 11 folds (and sequentially) since 2009. This clip play has included second portion of the 2007-2009 recession, the evidently beneficial Quantitative Easing [QE], COVID clang and its aftermath that impacted commercial/retail existent property the most, and the early phase of the existent Quantitative Tightening [QT]. I americium focusing connected operating currency travel due to the fact that it depicts the currency travel generated by the day-to-day concern arsenic opposed to the wide currency flow, which includes investing currency flow, which successful crook includes assets and hence depreciation.

Realty Cash Flow from Oper. Activ.

Realty Cash Flow from Oper. Activ. (

In short, I judge Realty Income has got an all-weather portfolio connected the backmost of its omniscient diversification. As awesome arsenic the database of apical 20 clients shown supra is, adjacent much awesome is the information that not a azygous 1 of them is liable for much than 4% of the full rent.

But The Stock is Down - Presents 5-Year High Yield, Barring COVID

Despite its enviable portfolio and banal record, Realty Income, astatine its basal level, is simply a REIT, which means it is highly perceived arsenic susceptible to involvement rates. Year-to-Date, the banal has underperformed by much than 30% compared to the S&P 500. And this has resulted successful a bully bargain for investors successful my opinion.

Realty Income's existent output of 6.19% is the highest successful the past 5 years astatine least, but for the COVID blip arsenic shown below. Each clip Realty Income announces its quarterly dividend increase, determination are ever immoderate commenters who scoff astatine and ridicule the tiny percent of dividend increase. But, specified comments neglect to instrumentality into relationship that this clip past year, Realty's monthly dividend was 24.80 cents and the conscionable announced dividend summation to 25.60 cents means the yearly dividend maturation complaint is 3.22%. Not excessively shabby erstwhile you see the starting output for those who bought this clip past twelvemonth was already 5.13%. I cognize what you are reasoning though. What is simply a 5% oregon adjacent 6% output these days? The adjacent conception is for you.

Realty Yield

Realty Yield (

Fed Fund Rates Projections

The biggest interest for the Real Estate is undoubtedly, involvement rates. The evident question for investors is "why bargain a risky plus similar a REIT astatine 6% output erstwhile safer plus classes are output adjacent to that, if not higher?". I person 2 answers:

  • It is simply a reasonably harmless to accidental the rates are nearer to their highs than lows. Even the projections coming retired of the Federal Reserve corroborate this with the Fed Fund rates expected to autumn from its existent 5.50% to 2.90% successful little than 3 years. Stocks of beardown REITs similar Realty Income volition beryllium among the archetypal ones to turnaround should the marketplace judge the rates are going to travel down.

Fed Fund Rate Projections

Fed Fund Rate Projections (

  • Stocks (or REITs) connection superior appreciation potential, particularly erstwhile buying astatine cyclical lows specified arsenic the 1 REITs look to beryllium successful now. Realty Income has not traded beneath $50 excessively galore times successful the past fewer years. The COVID debased was astir $42 and you'd person to spell arsenic acold backmost arsenic 2014 to find the banal beneath $40. Now, this does not mean the past volition find the aboriginal but erstwhile a institution is inactive going strong, semipermanent enactment lines thin to clasp well.

Realty Chart

Realty Chart (

SA Quant Ratings

Finally, Realty Income has got 1 of the champion dividend quant ratings I've seen connected Seeking Alpha. The dividend consistency (53 years) speaks for itself and hence the A+ is justified. I complaint the different 3 categories being B+ arsenic just to a small harsh. For example, the dividend output being B+ is apt a reflection of the information that the sector is filled with risky precocious yields. I'd alternatively person a 6% output that is unafraid and dilatory expanding implicit clip than a risky 10% output that tin topple anytime. For what it's worth, I'd personally complaint everything but dividend maturation arsenic A+ with dividend maturation getting a B.

Realty Quant Ratings

Realty Quant Ratings (


While involvement rates whitethorn enactment higher for a spot longer, it is inconceivable to maine and much accomplished professionals that we tin spell overmuch higher without bringing catastrophe knowingly. In short, successful a motion to the upcoming Halloween season, Realty Income and the marketplace are asking investors "Trick oregon Treat?". While the wide concern with ostentation and rates are so scarier than astir Halloween costumes, I judge the buying Realty Income present is simply a semipermanent dainty arsenic agelong arsenic we are not tricked by the short-term bumps.

This nonfiction was written by

Dividends (DGI and DRIP) and Growth astatine tenable terms (GARP) for Long-term. Serious money.Fun trading for short-term. Play money.Ideas and thoughts presented successful the articles are not nonrecreational recommendations.

Analyst’s Disclosure: I/we person nary stock, enactment oregon akin derivative presumption successful immoderate of the companies mentioned, but whitethorn initiate a beneficial Long presumption done a acquisition of the stock, oregon the acquisition of telephone options oregon akin derivatives successful O implicit the adjacent 72 hours. I wrote this nonfiction myself, and it expresses my ain opinions. I americium not receiving compensation for it (other than from Seeking Alpha). I person nary concern narration with immoderate institution whose banal is mentioned successful this article.

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