Realty Income Stock Offers High Dividend Yield: Buy, Hold or Sell?

Core Viewpoint - Focusing on dividend stocks is becoming increasingly popular amid macroeconomic uncertainties and market volatility, with Realty Income (O) being a notable example due to its consistent dividend growth and current attractive yield [1][2]. Dividend Performance - Realty Income has announced its 130th dividend hike since its NYSE listing in 1994, showcasing a strong track record of 30 consecutive years of rising dividends and 110 consecutive quarterly increases [1][5]. - The current dividend yield stands at 5.8%, which has increased due to a stock price decline of over 14% from its 52-week high [2][5]. Financial Health - Realty Income has robust cash flows from 15,621 properties across the U.S., U.K., and six other European countries, ending 2024 with $3.7 billion in liquidity and a fixed charge coverage ratio of 4.7 [6]. - The company has a well-laddered debt maturity schedule with a weighted average maturity of 6.6 years and a net debt to annualized pro-forma adjusted EBITDAre ratio of 5.4X [6]. Growth Strategy - The company has diversified its portfolio beyond traditional retail, entering sectors like industrial, gaming, and data centers, which positions it well for future growth [7][9]. - Realty Income plans to invest$3.9 billion in 2024, with an expected investment volume of approximately $4 billion in 2025, targeting a total addressable market of$5.4 trillion in the U.S. and $8.5 trillion in Europe [10]. Challenges - Tenant bankruptcies and uncertainties around tariffs may pose challenges to rent growth, with a noted increase in the company's bad debt provision from 50 to 75 basis points in 2024 [11][12]. - Rising Treasury yields could make bonds more appealing to income-focused investors, potentially impacting demand for REITs like Realty Income [13]. Valuation and Market Position - Realty Income's forward 12-month price-to-FFO ratio is 12.88X, below the retail REIT industry average of 15.48X, indicating a relative discount compared to peers [17]. - Recent estimate revisions for 2025 and 2026 funds from operations (AFFO) per share have shown a bearish trend, with declines of four and three cents, respectively [14]. Conclusion - Realty Income remains a strong dividend stock with a diverse tenant mix and a long-term net lease strategy, supported by a healthy balance sheet and strategic investments in resilient property sectors [18]. - While the stock trades at a discount to industry peers, caution is advised regarding macroeconomic factors before making investment decisions [19].