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Like a star athlete who has an off year or two due to injury, sometimes a stock or sector that has performed superbly over a long period may languish due to the current economic climate. The inflationary period since 2021 has created headwinds for many interest-sensitive stocks, such as real estate investment trusts (REITs). Each time the Federal Reserve has hiked interest rates, REITs invariably experience a sell-off.
Realty Income Corp (NYSE:O) has been a star of the REIT sector for many years but since Jan. 1, 2022, its total return (including dividends) has been -15.7%. The price per share at the beginning of 2022 was $71.20 and its most recent closing price was $53.72. The annualized dividend in January 2022 was $3.00, whereas it is now $3.15 per share.
Therefore, is it safe to say that now is a good time to buy shares of Realty Income? Take a look:
Realty Income is a San Diego-based, triple-net lease REIT, with over 15,450 properties across 89 industries with over 1500 different tenants worldwide. The “Monthly Dividend Company,” as it calls itself, is a member of the S&P 500 and an S&P 500 Dividend Aristocrat, meaning it has paid and raised its dividends consistently for at least 25 years. Realty Income has increased its dividend for 107 consecutive months and 125 times since its IPO in 1994.
Recent events have been positive for Realty Income:
On May 6, Realty Income reported its first quarter 2024 operating results. FFO of $1.05 beat the consensus estimate of $1.04 per share. Revenue of $1.26 billion topped the consensus estimate of $1.10 billion. Notably, Q1 2024 revenue was 33.4% above $865.71 million in the first quarter of 2023.
Realty Income also reaffirmed its full-year 2024 AFFO guidance of $4.13 to $4.21.
On May 17, Realty Income raised its monthly dividend by 2.1% from $0.2570 to $0.2625 per share. On an annualized basis that increases the dividend from $3.084 to $3.150 per share. This was the 647th consecutive common stock monthly dividend paid, a record unmatched by any other REIT. The dividend is payable on June 14 to shareholders of record as of June 3 and the present dividend yield is 5.71%.
On May 20, BMO Capital analyst Eric Borden raised the price target on Realty Income from $57 to $58. Two weeks earlier, the analyst had maintained a Hold rating. On May 16, Scotiabank analyst Nicholas Yulico maintained Realty Income at Sector Perform and raised the price target from $54 to $56.
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Unfortunately for Realty Income investors, Wall Street was somewhat indifferent to the company’s solid quarterly results. The stock has traded sideways in the two weeks since the earnings were released.
Wall Street has believed for some time that Realty Income has become too large to continue to grow its business. Yet, last year it acquired an interest in the Villaggio Las Vegas and merged with Spirit Realty Capital in January 2024. At the earnings call, President and CEO Sumit Roy noted that Realty Income completed $598 million of investment volume in Q1, at an initial weighted average cash yield of 7.8%.
Realty Income’s portfolio occupancy rate of 98.6% at the end of March was excellent and has remained steady year-over-year. Furthermore, it has an annualized adjusted free cash flow of approximately $825 million to continue making selective acquisitions.
Realty Income remains one of the foremost REITs today and with good reason. Its total return since Jan. 3, 1995, is 1,208%. The total return has been an incredible 3,881% for those who reinvest dividends!
With a Price/FFO of only 13 and a history of trading above $70 as recently as 2022, this popular REIT now trades at a discount. The dividend yield of 5.71% is well above the five-year average of 4.55%. The payout ratio is a comfortable 74.46% and FFO and revenue are higher now than in 2022.
The bottom line is that Realty Income investors can safely rely on that monthly dividend to be deposited into bank or brokerage accounts to pay regular bills. Investors have also come to expect small but consistent increases from that dividend to counter inflation. Realty income has declined in share price over the past two years, but it’s a consistent and ever-increasing money machine for investors willing to ride out the ups and downs of the stock market without selling shares. Given its recent price, it could be a wonderful opportunity to purchase shares at an ideal time.
Is Realty Income The Best Passive Real Estate Investment?
While Realty Income’s consistent dividend growth and monthly payouts make it an attractive option for passive real estate investing, there are other compelling alternatives that offer direct exposure to real estate without the volatility of publicly traded stocks. One such option is Arrived, a platform that allows investors to buy fractional shares of single-family rental properties.
Arrived offers a unique opportunity for investors to gain direct ownership in carefully selected rental properties across the United States. By purchasing shares of these properties, investors can enjoy the benefits of real estate ownership, such as monthly rental income and potential appreciation, without the responsibilities and challenges of being a landlord.
One of the key advantages of investing through Arrived is the ability to diversify your real estate portfolio with a relatively low minimum investment. With Arrived, you can invest in multiple properties across different markets, reducing your exposure to local market fluctuations and tenant vacancy risks. This diversification can help provide a more stable and predictable passive income stream compared to investing in a single REIT like Realty Income.
Furthermore, Arrived’s focus on single-family rentals offers investors exposure to a resilient and growing asset class. Single-family rental demand has been consistently strong, driven by factors such as demographic shifts, changing housing preferences and the affordability challenges of homeownership. By investing in this asset class through Arrived, investors can potentially benefit from the long-term growth and stability of the single-family rental market.
Another advantage is the transparency and control it offers. As a shareholder in a specific property, you have access to detailed information about the property’s performance, including occupancy rates, rental income and expenses. This level of transparency allows you to make informed decisions about your investments and adjust your portfolio as needed.
While Realty Income’s impressive track record and monthly dividends make it a solid choice for many investors, those seeking direct exposure to real estate with the potential for more stable returns and greater diversification should consider exploring fractional ownership opportunities like those offered by Arrived. By investing in a portfolio of carefully selected single-family rental properties, you can enjoy the benefits of passive real estate investing without the day-to-day responsibilities of property management or the volatility of public markets.
Click here to explore properties currently available on Arrived.
This article Realty Income Raises Dividends Again: Is Now A Good Time To Buy It? originally appeared on Benzinga.com
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