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Here's Why You Should Hold on to Realty Income (O) Stock Now

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Realty IncomeO is likely to remain on the growth curve with strategic acquisitions. During 2017, the company invested $1.52 billion in 303 new properties and properties under development or expansion, situated in 40 states. The assets are fully leased, with a weighted average lease term of around 14.4 years, and an initial average cash lease yield of 6.4%.

Around 48% of the rental revenues from acquisitions reported during 2017 was from investment grade-rated tenants. Moreover, based on the prevailing market conditions, the company expects to acquire $1.0-$1.5 billion in real estate investments.

Notably, Realty Income's portfolio comprised 5,172 properties, situated in 49 states and Puerto Rico as of Dec 31, 2017. These properties are leased to 249 different commercial tenants, belonging to 47 separate industries. As of the same date, Realty Income's retail properties generated 80.7% of rental revenues, while Industrial properties contributed 12.5%. Moreover, office assets reaped 4.6% of rental revenues and the remaining 2.2% was produced by agriculture assets.

This freestanding retail REIT - Realty Income - derives more than 90% of its annualized retail rental revenues from tenants belonging to service, non-discretionary and low-price retail business. Such businesses are less susceptible to economic recessions and competition from Internet retailing.

Additionally, Realty Income's solid underlying real estate quality and prudent underwriting at acquisition has helped the company maintain high occupancy levels consistently. In fact, since 1996, its occupancy level has never been below 96%. In 2018 too, the company projects occupancy to remain at approximately 98%. Additionally, its same-store rent growth underlines limited operational volatility.

The company continues to maintain a conservative capital structure. It has modest leverage, robust liquidity, and continued access to attractively priced equity and debt capital. Moreover, it has a well-laddered debt maturity schedule.

Furthermore, in January 2018, the company announced a hike in its common stock monthly cash dividend, denoting the 95th dividend increase since its NYSE listing in 1994. The company enjoys a trademark on the phrase "The Monthly Dividend Company" and the February 2018 dividend payment not only marked its 571 consecutive monthly dividend payouts throughout its 49-year operating history, but also 81 consecutive quarterly increases.

The company has maintained the same dividend rate for the March 2018 payout as well. In fact, it has generated a compound average annual dividend growth of around 4.7% since its listing on the NYSE. Given its financial position and lower debt-to-equity ratio compared to that of the industry, this dividend rate is likely to be sustainable.

Nevertheless, despite Realty Income's effort to diversify the tenant base, its tenants in the drug store industry accounted for around 10.6% of the company's rental revenues in fourth-quarter 2017. This makes the company's results susceptible to any adverse changes in this industry because a downturn in the industry or a change in legislation relating to prescription drugs, could substantially impact Realty Income's tenants and in turn, dampen the revenue stream of this REIT. Also, the choppy retail real estate environment and tenant credit issues remain concerns. Further, rate hike adds to its woes.

Shares of Realty Income have outperformed the industry it belongs to, in a month's time. This Zacks Rank #3 (Hold) company's shares have ascended 6.3%, while the industry registered growth of 2.6% during this time frame.

Stocks to Consider

A few better-ranked stocks from the real estate space include CBRE Group, Inc. CBG , FirstService Corp. FSV and Jones Lang LaSalle Incorporated JLL . All three stocks carry a Zacks Rank of 2 (Buy). You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here .

CBRE Group's Zacks Consensus Estimates for 2018 earnings per share have been revised 5.3% upward to $2.98 over the past month. Its share price has risen 7.7% in three months' time.

FirstService Corporation's earnings per share estimates for the current year have moved up 17.8% to $2.65 in a month's time. Its shares have inched up 0.6% over the past three months.

Jones Lang LaSalle's earnings per share estimates for 2018 have been revised 5.2% upward to $9.85 over the past month. The stock has rallied 11.7% during the past three months.

Note: FFO, a widely used metric to gauge the performance of REITs, is obtained after adding depreciation and amortization and other non-cash expenses to net income.

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CBRE Group, Inc. (CBG): Free Stock Analysis Report

FirstService Corporation (FSV): Free Stock Analysis Report

Realty Income Corporation (O): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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