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A Bull Market Could Be Here: 5 Reasons to Buy Realty Income Stock

Shares of Realty Income (O -0.22%) have been under pressure since the Federal Reserve began its rapid interest-rate-hiking streak in early 2022. With the stock now down around 30% from the cyclical high it hit in summer 2022, long-term income investors should give this reliable dividend payer a serious look. After investor sentiment shifts, the current share price could come to look like a bargain in hindsight.

Here are five reasons to consider adding Realty Income to your dividend portfolio today.

1. It’s “The Monthly Dividend Company”

Realty Income has increased its dividend payouts annually for 29 consecutive years. That’s a pretty impressive streak, particularly given that those dividend hikes continued right through the market’s dot-com crash, the Great Recession, and the coronavirus pandemic. Its payout growth may not have been fast (roughly 4.3% per year annualized over that 29-year span), but it is clearly regular.

In fact, this real estate investment trust (REIT) is so dedicated to dividends that it trademarked the nickname “The Monthly Dividend Company.” That speaks to its unusual practice of distributing its payouts monthly, of course, but also points to how important management considers it to pay investors well for sticking around.

2. It has a rock-solid foundation

REITs like Realty Income are specifically designed to pass their income on to investors via dividends. But the company’s business structure alone doesn’t ensure a safe income stream — plenty of REITs have cut their payouts over the past 29 years. That is why Realty Income’s investment-grade rated balance sheet should provide some comfort to investors. It is financially strong, lending a margin of safety to the dividend payment.

But an added benefit of that strength is that the REIT should have access to attractive interest rates when it issues debt to buy more real estate. That’s a double win.

3. It’s the big player among net lease REITs

In addition to being financially strong, Realty Income is also a giant in its industry. In the REIT’s net lease niche (net leases require tenants to pay most of the property-level operating expenses), it is more than three times as large as its next closest competitor in terms of market capitalization.

O Market Cap data by YCharts.

That should allow Realty Income the ability to tap equity markets more easily than its peers. It also means the REIT can take on deals that are larger than its smaller competitors can manage, giving it a potential leg up on investment opportunities.

The drawback here is that being bigger means that achieving meaningful growth requires more investment. But the benefits of scale it enjoys should probably interest conservative income investors.

4. It’s rolling up the industry

As noted, one important consequence of being so big is that Realty Income can take on big property deals. But it also puts the company in position to act as an industry consolidator. In 2021, it bought VEREIT. And more recently, it has agreed to acquire Spirit Realty. There’s no way to know if Realty Income will keep buying smaller peers, but if the price is right, there’s no particular reason to think it won’t be able to. And every time it gets bigger via acquisition, the next roll-up effort gets easier.

5. It is reaching into new spaces

Buying peers, however, isn’t the only way that Realty Income is growing. It has also been venturing into new geographies, sectors, and investment categories. Its first move on that front was buying net lease properties in Europe, where the net lease approach is still fairly new, and that offers the REIT material growth prospects.

Then it bought a casino in Boston — such properties are a completely new asset class for the REIT. It followed that up with another casino investment in Las Vegas. The Vegas deal involved buying preferred shares, which have bond-like traits, making the deal partially a financing transaction. That was something Realty Income hadn’t done before.

There are clearly nuances to each of the above efforts, but the big story is that Realty Income is adding new levers to facilitate long-term growth. That bodes well for the future of this giant REIT.

When the market turns, Realty Income is set to shine

Wall Street is a fickle place, and investor sentiment is clearly aligned against Realty Income today. But that negative view has pushed the REIT’s dividend yield up to 6%, near its highest levels of the past decade. Given the many positives this investment offers dividend investors, it is probably worth your time to take a deep dive before the market’s feelings about REITs turn positive again. When that happens, Realty Income’s stock could move rapidly and dramatically higher.

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