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Here's Why You Should Retain Realty Income (O) Stock for Now

The increase in consumers’ preference for in-person shopping experiences following the pandemic downtime has been driving the recovery in the retail real estate industry.

Given this backdrop, Realty Income O is well-poised to benefit from its portfolio comprising major industries that sell essential goods and services.

This retail real estate investment trust (REIT) derives a majority of its annualized retail contractual rental revenues from tenants with a service, non-discretionary and/or low-price-point component to their business. These businesses are less susceptible to economic downturns, assuring stable revenue generation for the company.

O has a diversified tenant base operating in 79 different industries. Apart from retail properties, its portfolio also comprises industrial and other properties. This minimizes the risks related to any particular industry, region or asset type.

Realty Income’s accretive buyouts and development initiatives seem encouraging for its external growth. It anticipates incurring more than $6 billion in acquisitions in 2022.

Moreover, its capital-recycling efforts highlight the company’s prudent capital management practices alongside relieving the pressure on its balance sheet.

On the balance-sheet front, the company exited the third quarter of 2022 with nearly $2.5 billion of liquidity. Further, its investment-grade credit ratings render it favorable access to the debt market.

With a well-laddered debt-maturity schedule and enough financial flexibility, O is well-positioned to capitalize on long-term growth opportunities.

Solid dividend payouts are the biggest enticements for REIT shareholders, and Realty Income remains committed to that. This September, “The Monthly Dividend Company” increased its monthly cash dividend on its common stock, marking the 117th dividend increase since its NYSE listing in 1994. Given its robust financial position and a lower debt-to-equity ratio compared with the industry, the latest dividend rate is likely to be sustainable.

Nonetheless, given the conveniences of online shopping, rising e-commerce adoption is concerning for Realty Income. Online retailing will likely remain a popular choice among customers, adversely impacting the market share for brick-and-mortar stores.

A major part of O’s tenant roster comprises single-client properties, which expose it to the risks associated with tenant defaults. This could hurt the company’s rental revenues generated from that property.

Also, rising interest rates are likely to increase the company's borrowing costs, affecting its ability to purchase or develop real estate.

Shares of this Zacks Rank #3 (Hold) company have lost 7.6% in the past three months compared with the industry’s decline of 0.4%.

Zacks Investment Research
Zacks Investment Research

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Stocks to Consider

Some better-ranked stocks from the retail REIT sector are Tanger Factory Outlet Centers SKT and American Assets Trust AAT, 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 Tanger Factory Outlet Centers’ ongoing year’s FFO per share has presently stands at $1.80.

The Zacks Consensus Estimate for American Assets Trust’s 2022 FFO per share is pegged at $2.26, presently.

Note: Anything related to earnings presented in this write-up represent funds from operations (FFO) — a widely used metric to gauge the performance of REITs.

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Tanger Factory Outlet Centers, Inc. (SKT) : Free Stock Analysis Report

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