Should You Buy, Hold or Sell Realty Income Stock in 2025?

The past few months have not been encouraging for Realty Income O. The stock has plunged 11.7% over the past three months, underperforming not only the S&P 500 composite but also the Zacks REIT and Equity Trust - Retail industry over the same time frame. It also declined 16.6% from its 52-week high achieved in October.The Fed’s hawkish stance, signaling an extended period of macroeconomic normalization and higher borrowing costs, has affected the more rate-sensitive stocks like REITs, and Realty Income has not been an exception. However, the stock was further punished amid rising concerns that President Trump's proposed tariffs could negatively impact some of Realty Income's retail tenants. Nevertheless, as market uncertainties emanating from policy shifts, economic volatility, and anticipations of high inflation and elevated interest rates for a prolonged period fueled investor skepticism toward Realty Income stock, the sell-off has also enabled Realty Income to offer higher dividend yields, presenting an opportunity for investors. Its dividend now yields 5.87%.Three-Month Price PerformanceImage Source: Zacks Investment ResearchBefore rushing to sell this stock or capitalize on the dip, it’s crucial to assess whether this REIT has the growth potential to maintain its dividend payments and determine if the current challenges could meaningfully affect its performance.What Is Driving Realty Income Stock's Performance?Realty Income boasts a largely recession-proof portfolio, enhancing its appeal to fixed-income investors. It has seen impressive growth and diversification, evolving from a traditional net lease operator into a leading REIT with a varied portfolio across multiple sectors and regions. Over the past decade, the company has expanded beyond its retail roots, strategically investing in industrial properties to benefit from the rise of e-commerce and omnichannel retail. This shift has bolstered its market position and reduced risks tied to traditional retail.Moreover, 90% of its total rent is resilient to economic downturns and/or isolated from e-commerce pressures. Realty Income’s top three industries — grocery stores (10.4%), convenience stores (9.4%), and dollar stores (6.5%) — are known for their resilience across various economic conditions.Realty Income’s growth strategy shows promise, driven by its expanding international presence, particularly in Europe, which opens doors for long-term growth. Its entry into non-traditional asset classes like gaming and data centers reflects a forward-looking focus. Key acquisitions, including Encore Boston Harbor and Bellagio Las Vegas, along with a partnership with Digital Realty DLR for data centers, highlight its commitment to high-growth sectors. The January 2024 merger with Spirit Realty Capital strengthens its scale, tenant diversity and leadership in the REIT market.With strong cash flows from 15,457 properties across the United States, the U.K. and six European countries as of Sept. 30, 2024, Realty Income, “The Monthly Dividend Company,” boasts a solid balance sheet and A3/A- credit ratings from Moody’s and S&P. The company has raised dividends 23 times in the past five years. As a member of the S&P 500 Dividend Aristocrats, it has delivered 30 years of rising dividends and 109 consecutive quarterly increases, with 4.2% average annual growth since 1994.What Hinders Realty Income's Growth Trajectory?Despite a solid business model and expansion efforts, 2025 may present challenges due to the operating environment and interest rates. Its growth prospects face headwinds in the near term due to mounting concerns over Trump’s proposed tariffs. These tariffs may pose significant challenges for its tenant base, especially businesses dependent on low-cost imports. Retail tenants, already under pressure from financial difficulties and widespread store closures, are particularly vulnerable. This raises concerns about potential increases in vacancy rates and a decline in rental income for Realty Income. Economists predict that tariffs and other Trump-era policies could lead to high inflation. As a result, the Federal Reserve may opt to maintain higher interest rates for a prolonged period instead of implementing rate cuts. This scenario presents a challenging environment for Realty Income.Concerns over inflation are a key factor pushing Treasury yields higher. For income-focused investors, rising bond yields can make bonds more attractive compared to REITs like Realty Income, which are also sought after for their high yields. This dynamic could lead to dividend-focused investors shifting their preferences away from REITs.O’s Estimate Revisions and ValuationEven the estimate revision trends echo similar sentiments. The Zacks Consensus Estimate for 2024 adjusted funds from operations (AFFO) per share has marginally climbed up over the past two months, while the same for 2025 has moved south over the past month.Image Source: Zacks Investment ResearchSee the Zacks Earnings Calendar to stay ahead of market-making news.Realty Income stock is trading at a forward 12-month price-to-FFO of 12.46X, below the retail REIT industry average of 15.95X and lower than its one-year median of 12.89X. 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 Take on Realty IncomeRealty Income is a top dividend stock offering a strong blend of income and growth. With a diversified tenant base, long-term net leases and a focus on recession-resistant sectors, it’s well-positioned for steady growth. However, proposed tariffs by Trump could raise costs for Realty Income’s tenants, increase development expenses and potentially reduce consumer spending. Persistent inflation and high interest rates could also impact investor sentiment toward REITs, including Realty Income, in the long term.The stock is currently trading at a discount compared to its peers, but it may be wise to hold off on any decisions until there is more clarity on policy changes, inflation trends, and their potential effects on Realty Income. For existing shareholders, staying invested could be a reasonable choice, given the company’s solid track record of monthly dividend growth and focus on attractive 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 Digital Realty Trust, Inc. (DLR): Free Stock Analysis Report Realty Income Corporation (O): Free Stock Analysis Report Agree Realty Corporation (ADC): 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