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

Amid macroeconomic uncertainties and market volatility, focusing on dividend stocks is gaining traction, and this brings our attention to Realty Income O. "The Monthly Dividend Company", which is an S&P 500 Dividend Aristocrats index member, has recently announced its 130th dividend hike since its listing on the NYSE in 1994.The stock fell more than 14% from its 52-week high achieved last October, closing at $55.65 on Tuesday. However, the sell-off has led Realty Income to offer higher dividend yields, presenting an opportunity for investors. Its dividend now yields 5.8%. So far in the year, the stock has outperformed the Zacks REIT and Equity Trust - Retail industry and the S&P 500 composite.Nevertheless, before hastily deciding to remove this stock from your portfolio or rushing to buy, it’s important to evaluate whether this REIT has strong growth potential to sustain its dividend payments and assess whether the current concerns could significantly impact the company’s performance.Year-to-Date Price PerformanceImage Source: Zacks Investment ResearchIs Realty Income's Growth and Dividend Built to Last?Realty Income has a solid track record of consistently paying dividends. “The Monthly Dividend Company” has delivered 24 dividend increases over the past five years. It has delivered 30 consecutive years of rising dividends and 110 consecutive quarterly increases. O has witnessed compound average annual dividend growth of 4.3% since 1994. This track record underscores its resilience and solidifies its appeal as a reliable, income-focused investment for shareholders. Check Realty Income’s dividend history here.What is encouraging is that this payout rests on a solid and reliable footing with robust cash flows generated from 15,621 properties spanning all 50 U.S. states, the U.K. and six other European countries as of Dec. 31, 2024, along with a strong balance sheet and A3 /A- credit ratings by Moody’s & S&P. O ended 2024 with $3.7 billion in liquidity and a fixed charge coverage ratio of 4.7. Net debt to annualized pro-forma adjusted EBITDAre was 5.4X. Moreover, Realty Income has a well-laddered debt-maturity schedule with a weighted average maturity of 6.6 years.This REIT is well-positioned to sustain its dividend growth moving forward. Realty Income has experienced significant growth and diversification, evolving from a traditional net lease operator into a leading REIT with a broad portfolio across various industries and regions. Over the past decade, the company has strategically expanded beyond its retail foundation, entering the industrial sector to leverage the rise of e-commerce and omnichannel retail. This strategic shift has enhanced its market standing while reducing exposure to traditional retail risks. Realty Income’s move into non-traditional asset classes, including gaming and data centers, highlights its strategic focus on future growth. Notable investments like Encore Boston Harbor and Bellagio Las Vegas, coupled with a partnership with Digital Realty DLR for data center investments, reflect its strategic pursuit of high-growth opportunities. Realty Income’s growth strategy appears promising, fueled by its increasing global footprint, especially in Europe, which paves the way for sustained expansion. For 2024, the company allocated $3.9 billion in investments, achieving an initial weighted average cash yield of 7.4%. O now expects a full-year 2025 investment volume of approximately $4 billion. Moreover, with the company estimating the total addressable market for net lease real estate investments in the United States of $5.4 trillion and another $8.5 trillion in Europe, Realty Income has a solid investment opportunity.Challenges to Realty Income’s Growth StoryTenant bankruptcies may challenge Realty Income’s rent growth, while uncertainty around tariffs could further strain retailers in its portfolio, potentially impacting overall performance.The company’s bad debt provision rose to 75 basis points from 50 in 2024, driven by difficulties with a few struggling tenants, many acquired through M&A transactions. Management noted three key tenants, including a major office tenant, though they anticipate effective rent recapture despite short-term risks. 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.O’s Estimate Revisions and ValuationThe estimate revisions reflect a somewhat bearish trend. The Zacks Consensus Estimate for 2025 adjusted funds from operations (AFFO) per share has declined by four cents over the past month, while the same for 2026 has also moved south by three cents over the same time frame.O’s Estimate Revision TrendImage Source: Zacks Investment ResearchFind the latest EPS estimates and surprises on Zacks Earnings Calendar.Realty Income stock is trading at a forward 12-month price-to-FFO of 12.88X, below the retail REIT industry average of 15.48X and lower than its one-year median of 12.99X. Although Realty Income stock is currently trading at a discount compared to its industry peers like Agree Realty Corporation ADC, this valuation disparity might not be as favorable as it seems.Forward 12 Month Price-to-FFO (P/FFO) RatioImage Source: Zacks Investment ResearchFinal Thoughts on ORealty Income remains a top dividend stock, combining steady income with growth potential. Its diverse tenant mix and long-term net lease strategy support sustainable growth. It derives a majority of its annualized contractual rents from tenants with a service, non-discretionary, low-price-point component to their business, assuring stable revenue generation. Moreover, entry into non-traditional asset classes like gaming and partnership with Digital Realty for data centers reflects a forward-looking focus. Accretive buyouts and diversification, backed by a healthy balance sheet, bode well for long-term growth.Although the stock trades at a relative discount to industry peers, including Agree Realty, waiting for more clarity on policy shifts, inflation trends and their impact on Realty Income may be wise before assessing whether the valuation presents a buying opportunity or hidden risks. Meanwhile, existing investors might opt to hold, given the company’s consistent track record of monthly dividend growth and investments in resilient property sectors.At present, Realty Income carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.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.Zacks Names #1 Semiconductor StockIt's only 1/9,000th the size of NVIDIA which skyrocketed more than +800% since we recommended it. NVIDIA is still strong, but our new top chip stock has much more room to boom.With strong earnings growth and an expanding customer base, it's positioned to feed the rampant demand for Artificial Intelligence, Machine Learning, and Internet of Things. Global semiconductor manufacturing is projected to explode from $452 billion in 2021 to $803 billion by 2028.See This Stock Now for Free >>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 Realty Income Corporation (O): Free Stock Analysis Report Digital Realty Trust, Inc. (DLR): Free Stock Analysis Report Agree Realty Corporation (ADC): Free Stock Analysis ReportThis article originally published on Zacks Investment Research (zacks.com).Zacks Investment ResearchWeiter zum vollständigen Artikel bei Zacks Weiter zum vollständigen Artikel bei Zacks