For most of 2024, Realty Income (NYSE: O) disappointed many investors. The stock was in negative territory, falling as much as 11.5% year to date by mid-April. But the real estate investment trust (REIT) isn't a disappointment now.
Since July 1, shares of Realty Income have jumped close to 17%. And that could be just the beginning. Here are three reasons to buy Realty Income stock like there's no tomorrow.
1. Its dividend (duh)
There's absolutely no way I couldn't start the discussion about why to buy Realty Income stock without bringing up its dividend. Few stocks compare with the REIT's dividend program.
First, Realty Income pays a monthly instead of a quarterly dividend. It even registered the trademark, "The Monthly Dividend Company." The monthly dividend is a nice plus for income investors.
Second, the dividend is exceptionally juicy. Realty Income's forward dividend yield is 5.16%. It doesn't take much share price appreciation for investors to enjoy market-beating total returns with that high of a yield.
Third, the REIT has increased its dividend for 29 consecutive years. And we're not talking about puny dividend hikes. Since listing its shares on the New York Stock Exchange in 1994, Realty Income has grown its dividend by a compound annual growth rate (CAGR) of 4.3%.
2. Its dependability
Realty Income's track record of dividend increases underscores another key reason to buy this stock -- its dependability. The company has been in business for 55 years. It has successfully weathered multiple recessions and global crises yet came out stronger.
The REIT's diversified portfolio helps it be so dependable. Realty Income has over 1,550 clients that span 90 industries. The company estimates that roughly 90% of its total rent is "resilient to economic downturns and/or isolated from e-commerce pressures." Around 36% of its rent comes from clients with investment-grade credit ratings.
Speaking of credit ratings, Realty Income looks solid on that front too. Moody's gave the company an A3 credit rating, while S&P gave it an A- credit rating. Both ratings mean medium investment grade with a low risk of default.
Realty Income has generated positive earnings-per-share growth in 27 of the last 28 years. Its stock has increased by a CAGR of 13.5% since 1994. And it has grown with a remarkably low level of volatility: The REIT's beta versus the S&P 500 is only 0.5 since its NYSE listing in 1994.
3. Its growth opportunities
Last, but not least, Realty Income has strong growth opportunities. Over the near term, the Federal Reserve's anticipated interest rate cut in September should light a fire beneath the stock. REITs tend to move higher as interest rates move lower. However, I think investors should focus even more on Realty Income's long-term growth prospects.
Realty Income's total addressable market in the U.S. is $5.4 trillion. It has growth opportunities in retail, consumer-centric medical, and industrial properties. I view data centers as an especially lucrative growth area.
But the REIT has an even bigger opportunity in Europe. The total addressable market in Europe is $8.5 trillion, including $2.6 trillion the U.K. alone. If Realty Income could achieve the market saturation in Europe that it has in the U.S., its enterprise value would skyrocket by 11x.
Can Realty Income fully capitalize on its growth opportunities? We'll see. I think average annual adjusted funds from operations (AFFO) growth of around 10% over the long run is realistic, though. Investors' total returns should track pretty well with this AFFO growth, in my view.
Should you invest $1,000 in Realty Income right now?
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Keith Speights has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Realty Income. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
