Here's Why You Should Retain Realty Income in Your Portfolio Now

Realty Income O is well-poised to benefit from its focus on leasing to service, non-discretionary and low-price-based retailers. Also, accretive buyouts, backed by a healthy balance sheet position, bode well for growth. However, proposed tariffs remain a concern as they could adversely affect its tenant base, especially those dependent on low-cost imports. Moreover, amid the current apprehensions related to inflation and rate cut projections, Realty Income’s rate sensitivity adds to the woes. Shares of Realty Income have gained 3.3% over the past month, against the industry's 2.5% decline. Analysts seem bullish on this Zacks Rank #3 (Hold) company, with the Zacks Consensus Estimate for its 2024 FFO per share revised upward marginally over the past two months to $4.20.Image Source: Zacks Investment ResearchWhat’s Aiding Realty Income?Realty Income has demonstrated solid growth and diversification, evolving from a traditional net lease operator into a leading REIT with a broad portfolio across various industries and regions. With tenants representing 90 distinct industries and a weighted average remaining lease term of 9.4 years, the company has established a robust foundation. The company derived 91% of its annualized retail contractual rental revenues from the tenants with a service, non-discretionary, low-price-point component to their business as of Sept. 30, 2024. Such businesses are less susceptible to economic recessions and competition from Internet retailing. Moreover, the company targets industrial properties leased to industry leaders, mainly investment-grade rated companies, providing more reliable streams of income.Realty Income’s growth initiatives are promising, with its international expansion, especially in Europe, opening new opportunities for sustained long-term growth. Bolstered by a favorable investment climate, the company raised its 2024 investment volume guidance to approximately $3.5 billion during its third-quarter earnings announcement.Realty Income’s expansion into non-traditional asset classes, such as gaming and data centers, underscores its commitment to driving future growth. Notable acquisitions, including Encore Boston Harbor and Bellagio Las Vegas, along with a collaboration with Digital Realty DLR to invest in data centers, showcase its strategy to penetrate high-growth sectors. The January 2024 merger with Spirit Realty Capital further bolstered its scale and diversified its tenant base, solidifying its status as a dominant force in the REIT industry.With robust cash flows generated from 15,457 properties spanning all 50 U.S. states, the U.K. and six other European countries as of Sept. 30, 2024, along with a strong balance sheet and A3 /A- credit ratings by Moody’s & S&P, “The Monthly Dividend Company” has delivered 23 dividend increases over the past five years. This track record underscores its resilience and solidifies its appeal as a reliable, income-focused investment for shareholders. This S&P 500 Dividend Aristocrats index member has delivered 30 consecutive years of rising dividends and 109 consecutive quarterly increases. It has witnessed compound average annual dividend growth of 4.2% since 1994.What’s Hurting Realty Income?However, Realty Income faces near-term headwinds as concerns mount over Trump’s proposed tariffs, which could adversely affect its tenant base, especially those dependent on low-cost imports. Retail tenants, already under pressure from financial difficulties and widespread store closures, are particularly vulnerable. This raises the risk of higher vacancy rates and potential declines in rental income for Realty Income.Economists anticipate that tariffs and other Trump-era policies could contribute to rising inflation, prompting the Federal Reserve to maintain elevated interest rates for a prolonged period. Such conditions create challenges for rate-sensitive REITs like Realty Income, which rely significantly on debt financing, leading to heightened investor caution in a high-interest-rate environment.Investor worries about inflation play a significant role in driving Treasury yields higher. Since bonds and REITs like Realty Income attract income-focused investors with their high yields, rising bond yields can make bonds more appealing, potentially drawing dividend-focused investors away from REITs.Stocks to ConsiderSome better-ranked stocks from the retail REIT sector are Kimco Realty KIM and Regency Centers REG, each carrying a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.The Zacks Consensus Estimate for Kimco Realty’s 2024 FFO per share has been revised a cent upward over the past two months to $1.64.The Zacks Consensus Estimate for Regency Centers’ 2024 FFO per share has been raised a cent north over the past two months to $4.28.Note: Anything related to earnings presented in this write-up represents funds from operations (FFO), a widely used metric to gauge the performance of REITs.Just Released: Zacks Top 10 Stocks for 2025Hurry – you can still get in early on our 10 top tickers for 2025. Handpicked by Zacks Director of Research Sheraz Mian, this portfolio has been stunningly and consistently successful. From inception in 2012 through November, 2024, the Zacks Top 10 Stocks gained +2,112.6%, more than QUADRUPLING the S&P 500’s +475.6%. Sheraz has combed through 4,400 companies covered by the Zacks Rank and handpicked the best 10 to buy and hold in 2025. You can still be among the first to see these just-released stocks with enormous potential. See New Top 10 Stocks >>Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report Kimco Realty Corporation (KIM): Free Stock Analysis Report Digital Realty Trust, Inc. (DLR): Free Stock Analysis Report Regency Centers Corporation (REG): Free Stock Analysis Report Realty Income Corporation (O): Free Stock Analysis ReportTo read this article on Zacks.com click here.Zacks Investment ResearchWeiter zum vollständigen Artikel bei Zacks Weiter zum vollständigen Artikel bei Zacks