I persist in purchasing more of this outstanding high-dividend-yielding, growth-focused stock (with the likelihood of further acquisitions in 2025).
I persist in purchasing more of this outstanding high-dividend-yielding, growth-focused stock (with the likelihood of further acquisitions in 2025).
I can't get enough of this Realty Income (O 1.29%) this year. I've purchased shares of the leading real estate investment trust (REIT) multiple times, even just last week. The main draw is its high-yielding and consistently rising dividend.
Given the REIT's current appeal, I'll probably buy more shares whenever I can. Here's why I keep increasing my investment.
A fantastic income source
Realty Income is a fantastic dividend stock. The REIT makes monthly dividend payments, earning itself the nickname 'The Monthly Dividend Company'. This makes it great for those seeking passive income. And the current yield? Around 5.7%, significantly higher than the S&P 500 index's yield (1.2%).
This above-average income stream rests on a sturdy base. Realty Income owns a growing diversified real estate portfolio backed by long-term net leases with numerous global corporate giants. These leases obligate tenants to cover all operational costs, including maintenance, taxes, and insurance. This results in consistent rental income for the REIT.
The company pays out about 75% of its adjusted funds from operations (FFO) in dividends, a conservative rate for a REIT. This allows it to retain a substantial cash reserve for new investments. Realty Income also boasts a top-notch balance sheet. It's one of only eight REITs in the S&P 500 with credit ratings of A3/A- or better. These factors ensure a rock-solid foundation for the REIT's dividend.
consistent growth
Realty Income has announced its 128th dividend increase since its 1994 public market debut (it has increased its payout for 109 consecutive quarters and 30 consecutive years). It has grew its dividend at a 4.2% compound annual rate during that 30-year period.
The REIT's ability to steadily increase its dividend stems from its remarkably resilient earnings growth. It has delivered positive adjusted FFO per share growth in 27 out of its 28 years as a public company. Overall, it has grown its adjusted FFO at a 5% compound annual rate.
It's well-positioned to continue growing at a low to mid-single digit rate. Its existing portfolio should deliver around 1% annual adjusted FFO per share growth via contractual rental rate increases.
Meanwhile, it has ample financial capacity to continue growing its portfolio through new investments. It makes billions in new property investments each year. It still has a significant growth potential ahead, given the nearly $14 trillion worth of commercial real estate suitable for net leases across the US and Europe. Realty Income has boosted its growth potential by expanding into new investment verticals, such as gaming and data center properties, entering new European markets, and launching credit and private capital investment platforms.
A compelling bargain
Realty Income shares are currently undervalued. They were recently about 15% below their 52-week high and about 30% below their pre-pandemic peak. With the REIT's earnings on the rise, its valuation has reduced.
It trades at about 15 times its enterprise value to EBITDA, which is below the REIT sector average of over 16x. This is also lower than the over 24x valuation multiple of asset managers. The company's private capital management platform should warrant a higher valuation as it grows.
The whole package
Realty Income ticks all the boxes for me. It offers a high-yielding dividend backed by strong financial metrics. It's also growing at a good clip, which should continue. On top of that, it trades at an attractive valuation, which is becoming increasingly rare as the market continues its upward trend. These factors are why I continue adding to my position in the elite REIT and will likely keep doing so as long as shares remain undervalued.
Given the REIT's strong financial performance and consistent dividend increases, I'm considering reallocating some of my savings towards investing in Realty Income. The current undervaluation of its shares, as indicated by their lower price compared to the pre-pandemic peak and REIT sector average, makes this a potentially profitable opportunity for future income.
Due to Realty Income's diversified real estate portfolio, consistent rental income, and strong balance sheet, it has a solid foundation for maintaining and increasing its dividends. Therefore, I believe that investing in this dividend stock could provide a steady source of income in my long-term finance strategy.