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Globe and Mail
06-07-2025
- Business
- Globe and Mail
Where Will Realty Income Stock Be in 5 Years?
Key Points Realty Income (NYSE: O), one of the world's largest real estate investment trusts (REITs), is often considered a dependable income investment. It sports a forward yield of 5.6%, it pays its dividends monthly, and it's raised its payout 131 times since its IPO in 1994. As a REIT, Realty Income must distribute at least 90% of its pre-tax income to its investors as dividends to maintain a favorable tax rate. It leases its 15,621 properties to 1,565 different clients in over 89 industries in the U.S., U.K., and Europe, and its occupancy rate has never dipped below 96%. It's also a capital-light triple net lease REIT -- which means its tenants need to cover their own property taxes, insurance premiums, and maintenance fees. Over the past five years, Realty Income's stock price fell about 3%. Like many other REITs, it struggled in 2022 and 2023 as rising rates made it more expensive to purchase new properties, stirred up macro headwinds for its tenants, and drove some of its income investors toward risk-free CDs and T-bills. But if we include its reinvested dividends, it still delivered a total return of 25%. So will Realty Income's stock rally over the next five years as interest rates decline, or does it face other unpredictable challenges? What happened to Realty Income over the past few years? Realty Income merged with VEREIT in 2021 and Spirit Realty in 2024. Those mergers more than doubled its number of properties from 2020 to 2024, but it still maintained a high occupancy rate as it grew its adjusted funds from operations (AFFO) and dividends per share. Metric 2020 2021 2022 2023 2024 Total year-end properties 6,592 10,423 12,237 13,458 15,621 Year-end occupancy rate 97.9% 98.5% 99% 98.6% 98.7% AFFO per share $3.39 $3.59 $3.92 $4.00 $4.19 Dividends per share $2.71 $2.91 $2.97 $3.08 $3.17 Data source: Realty Income. Some of Realty's top tenants -- including Walgreens, 7-Eleven, and Dollar Tree -- struggled with store closures over the past few years. However, stronger tenants like Dollar General, Walmart, and Home Depot consistently offset that pressure by opening new stores. Realty Income still doesn't generate more than 3.4% of its annualized rent from a single tenant, and it locks its tenants into long-term leases with an average term of nearly 10 years. That diversification and stickiness insulates it from economic downturns. What will happen to Realty Income over the next five years? Over the next five years, Realty Income will likely expand in Europe to curb its dependence on the U.S. market. Unlike its leases in the U.S., most of its European leases are tethered to the consumer price index, which allows it to raise its rent to keep pace with inflation. It will likely ramp up its investments in data centers to profit from the secular growth of the cloud and AI markets, and scoop up more properties at favorable prices in sale-leaseback deals (in which businesses sell their own real estate and lease it back to cut costs). It could also expand into more experiential markets -- like gyms, resorts, and restaurants -- to further diversify its portfolio. Realty still generates most of its rental income from the retail sector, but those tenants should face fewer headwinds as inflation subsides and interest rates decline. Lower interest rates should also make CDs and T-bills less attractive and drive more investors back toward REITs. From 2019 to 2024, Realty Income grew its AFFO at a CAGR of nearly 5%. If it continues to grow its AFFO at a CAGR of 5% from 2024 to 2030 -- and still trades at 14 times its trailing AFFO -- its stock price could rise 33% to about $77 within the next five years. It should continue to raise its dividends and stay within its historical yield of 4%-6%. So while Realty Income might not consistently beat the S&P 500 -- which has delivered an average annual return of 10% since its inception -- it should remain a stable investment for investors who need a reliable stream of monthly income. That's why I personally own shares of Realty Income, and why I think it's a solid long-term play. Should you invest $1,000 in Realty Income right now? Before you buy stock in Realty Income, consider this: The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Realty Income wasn't one of them. The 10 stocks that made the cut could produce monster returns in the coming years. Consider when Netflix made this list on December 17, 2004... if you invested $1,000 at the time of our recommendation, you'd have $699,558!* Or when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you'd have $976,677!* Now, it's worth noting Stock Advisor 's total average return is1,060% — a market-crushing outperformance compared to180%for the S&P 500. Don't miss out on the latest top 10 list, available when you join Stock Advisor. See the 10 stocks » *Stock Advisor returns as of June 30, 2025
Yahoo
13-03-2025
- Business
- Yahoo
2 Dividend Stocks to Buy and Hold Forever
Long-term investing is one of the keys to earning sustainable returns in the stock market. And dividend stocks can help maximize your gains by providing consistent passive income potentially for a lifetime. Let's discuss some reasons why Realty Income (NYSE: O) and Dollar General (NYSE: DG) are good enough to buy and hold for the long haul. Founded in 1969, Realty Income is one of America's best-known real estate investment trusts (REITs) -- a type of company that receives tax benefits for returning most profits to shareholders via dividends. The company stands out because of its size, stability, and consistent returns. Realty Income's business model involves buying commercial properties, renting them out to tenants, and distributing the income to shareholders. It boasts a diversified portfolio of relatively safe clients like dollar stores, pharmacies, and automotive services, which can be expected to continue paying their leases, even in bad economic conditions. While the company is already the seventh-largest REIT in the world, it continues to expand by buying new properties and merging with smaller rivals, such as Spirit Realty, which was acquired for $9.3 billion in early 2024. International expansion is another significant growth opportunity, and Realty Income has made a significant push into the U.K., which now represents almost 12% of its portfolio. With a dividend yield of 5.5%, Realty Income trounces the S&P 500's average of 1.27%. It is also on the list of Dividend Aristocrats®, a group of S&P 500 companies that have increased their annual dividends in each of the past 25 consecutive years. (The term Dividend Aristocrats® is a registered trademark of Standard & Poor's Financial Services LLC.) Consumer staples companies sell essential goods like food, personal care products, and supplies. People tend to buy these things even when the economy is weak, making them an excellent pick for investors who prioritize safety and longevity. As a dollar store chain, Dollar General fits snugly into this category. But while Dollar General has historically been resistant to recessions, inflation has been a uniquely challenging problem because of how hard it hits the company's core low-income customers. While they still visit dollar stores, they are more likely to spring for low-margin consumables instead of bigger-ticket home goods, hurting the company's profitability. Shares have fallen by around 48% over the last 12 months, presenting an opportunity to buy the dip. With a forward price-to-earnings (P/E) multiple of just 13.5, Dollar General shares have become very oversold compared to alternatives like Walmart, which boasts a forward P/E of 35. U.S. inflation is cooling, and Dollar General looks capable of growing out of its current challenges. Management expects to open a whopping 575 new U.S. stores in 2025 (the company currently has a little over 20,000 locations) while remodeling its existing stores to improve traffic and customer satisfaction. Meanwhile, with a payout ratio of just 39%, Dollar General's dividend (yielding 2.88%) looks safe for the long haul. Realty Income and Dollar General are both excellent picks for long-term dividend investors because of their above-average yields and relatively defensive business models. With its much higher yield and longer track record, Realty Income is better for investors who prioritize passive income. Dollar General likely offers more growth potential as it recovers from near-term challenges and continues to expand its store footprint. Before you buy stock in Realty Income, consider this: The Motley Fool Stock Advisor analyst team just identified what they believe are the for investors to buy now… and Realty Income wasn't one of them. The 10 stocks that made the cut could produce monster returns in the coming years. Consider when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you'd have $666,539!* Now, it's worth noting Stock Advisor's total average return is 799% — a market-crushing outperformance compared to 162% for the S&P 500. Don't miss out on the latest top 10 list, available when you join . See the 10 stocks » *Stock Advisor returns as of March 10, 2025 Will Ebiefung has positions in Realty Income. The Motley Fool has positions in and recommends Realty Income. The Motley Fool has a disclosure policy. 2 Dividend Stocks to Buy and Hold Forever was originally published by The Motley Fool
Yahoo
27-02-2025
- Business
- Yahoo
This Dependable 5.6%-Yielding Dividend Stock Continues Its Steady Growth
Realty Income's (NYSE: O) mission has been to invest in ways that enable it to pay a dependable dividend that grows over time. The real estate investment trust (REIT) has certainly delivered on that aim over the years. It has raised its dividend 129 times since coming public in 1994, including the last 110 quarters in a row. Driving its dependability is the REIT's steadily rising rental income. Last year, Realty Income delivered its 14th straight year of adjusted funds from operations (FFO) per-share growth. It has now grown its adjusted FFO per share in all but one year since coming public. It expects 2025 will be more of the same. Realty Income recently reported its fourth-quarter and full-year results for 2024. The diversified REIT generated $4.19 per share of adjusted FFO, a 4.8% increase from 2023's level, extending its growth streak to 14 years in a row. That enabled it to raise its dividend by about 4.5% over the past year, pushing the yield to more than 5.6% as I write this. The biggest factor driving its growth last year was its highly accretive acquisition of fellow diversified REIT Spirit Realty. It closed the $9.3 billion deal in January. The merger helped deliver more than 2.5% accretion to the REIT's adjusted FFO per share. On top of that, Realty Income invested another $3.9 billion into nearly 550 properties across the U.S. and Europe at a weighted average initial cash yield of 7.4%. It spent $1.4 billion to acquire properties in the U.S. and nearly $1.1 billion on European acquisitions, invested over $750 million into development projects, and made more than $630 million in loans. About 90% of its investments were in retail properties, 8.6% in industrial real estate, and 1.5% in other properties like data centers. The final growth driver was rising rental income. The REIT's long-term net leases escalate rents at a very low single-digit annual rate. Meanwhile, it signed new leases at higher rental rates as legacy ones expired. Its rent recapture rate was 105.6% on units re-leased during the year, implying a 5.6% average rental increase from the prior rates on the same space. Realty Income expects to continue growing in 2025. The REIT anticipates that its adjusted FFO will rise to a range of $4.22 to $4.28 per share, implying growth of up to 2%. Driving that growth is roughly 1% same-store rent growth across its portfolio and an anticipated acquisition volume of $4 billion. Those drivers will help offset the impact of higher interest rates as it refinances maturing debt and a potential increase in vacancies (it had 205 vacant properties at the end of 2024, while leases comprising 3.2% of its annual base rent expire this year). That forecast has upside potential. Realty Income has historically been very conservative with its guidance. For example, it raised its guidance (at least at the low end) several times last year: Month Acquisition Guidance (Excluding Spirit Realty) Adjusted FFO Per-Share Guidance Range February $2 billion $4.13-$4.21 June $3 billion $4.14-$4.21 November $3.5 billion $4.17-$4.21 Actual $3.9 billion $4.19 Data source: Realty Income. If Realty Income can access outside capital at attractive rates and find accretive investment opportunities, it could achieve a higher acquisition volume and deliver a higher adjusted FFO growth rate this year. One potential growth accelerator is the REIT's private capital fund management platform, which it launched late last year. The REIT expects to co-invest in the fund, which will generate management fee income. That income will enhance its growth rate and investment returns. If it successfully raises capital for this fund, it could help drive faster growth. Realty Income has only had one year where it didn't grow its adjusted FFO per share. Meanwhile, it has increased its dividend every single year over the past three decades. That steady growth should continue in 2025. Because of that, the REIT is a great option for investors seeking to steadily grow their passive income and the value of their investment. Before you buy stock in Realty Income, consider this: The Motley Fool Stock Advisor analyst team just identified what they believe are the for investors to buy now… and Realty Income wasn't one of them. The 10 stocks that made the cut could produce monster returns in the coming years. Consider when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you'd have $776,055!* Now, it's worth noting Stock Advisor's total average return is 892% — a market-crushing outperformance compared to 174% for the S&P 500. Don't miss out on the latest top 10 list, available when you join . See the 10 stocks » *Stock Advisor returns as of February 24, 2025 Matt DiLallo has positions in Realty Income. The Motley Fool has positions in and recommends Realty Income. The Motley Fool has a disclosure policy. This Dependable 5.6%-Yielding Dividend Stock Continues Its Steady Growth was originally published by The Motley Fool Sign in to access your portfolio
