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Key Reasons to Add Realty Income (O) to Your Portfolio Now

Realty Income Corporation O is well-poised to benefit from its focus on leasing to industries selling essential goods and services and a diversified tenant base. Also, accretive buyouts, backed by a robust balance sheet position, bode well for growth.

Realty Income recently announced an increase in its 2024 earnings and investment guidance. The retail REIT now projects its 2024 adjusted funds from operations (AFFO) in the range of $4.15-$4.21 per share compared with the prior guidance range of $4.13-$4.21 per share. Reflecting analysts’ bullish sentiments, the Zacks Consensus Estimate for the same has also been revised marginally upward over the past week to $4.21.

Realty Income also expects its 2024 investment volume to reach $3 billion, up from $2 billion guided earlier. Per management, these raises reflect the company’s confidence in its business outlook as it nears the midpoint of the year.

Boosting shareholders’ wealth, in June, Realty Income announced an increase in its common stock monthly cash dividend to 26.30 cents per share from 26.25 cents paid out earlier. This marked its 126th dividend hike since its listing on the NYSE in 1994 and the fourth increase in 2024. The increased amount will be paid out on Jul 15 to shareholders on record as of Jul 1, 2024.

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Shares of this currently Zacks Rank #2 (Buy) company have risen 1.8% over the past three months against the industry’s decline of 3.6%. Given the solid fundamentals, O has decent scope to outperform its industry in the upcoming period.

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Zacks Investment Research


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What Makes Realty Income a Solid Pick?

Resilient Business Model: This retail REIT derives the majority of its annualized retail contractual rental revenues from tenants with a service, non-discretionary and/or low-price-point component to their business. Around 90% of its total rent is resilient to economic downturns and/or isolated from e-commerce pressures. Also, O has a diversified portfolio with respect to the tenant, industry, geography and property type. These assure stable revenue generation for the company.

Expansionary Efforts: Realty Income is focused on external growth through the exploration of accretive acquisition opportunities and developments. The solid property acquisition volume at decent investment spreads has aided the company’s performance so far. O expects its 2024 investment volume to reach $3 billion.

In the first quarter of 2024, the company invested $598 million in 155 properties and properties under development or expansion. Particularly, in January 2024, Realty Income completed its all-stock merger transaction with Spirit Realty Capital, Inc. The transaction adds to Realty Income's size, scale and diversification, enabling it to expand its scope for future growth.

In November 2023, Realty Income entered into a JV with Digital Realty DLR to facilitate the development of two build-to-suit data centers in Northern Virginia. The move marked the retail REIT’s maiden foray into the data center sector and further diversified its portfolio. It invested approximately $200 million, securing an 80% equity interest in the venture, while Digital Realty maintains a 20% interest.

Balance Sheet & Cash Flow Strength: On the balance sheet front, O exited the first quarter of 2024 with $4 billion of liquidity. The company ended the quarter with modest leverage and strong coverage metrics with net debt to annualized pro forma adjusted EBITDAre of 5.5X and a fixed charge coverage of 4.5X. Further, Realty Income has a well-laddered debt-maturity schedule with a weighted average maturity of 6.5 years. O also enjoys a credit rating of A- (Stable) and A3 (Stable) from Standard & Poor’s and Moody’s, respectively, which provides access to the debt market at favorable costs.

O’s current cash flow growth is projected at 9.86% compared with the 4.92% estimated for the industry. A well-laddered debt maturity schedule and ample liquidity provide the company with the financial flexibility to tide over any mayhem and bank on growth scopes.

Dividend Payments: Solid dividend payouts are the biggest enticements for real estate investment trust (REIT) investors, and Realty Income is committed to boosting its shareholder wealth. This retail REIT holds the trademark of the phrase “The Monthly Dividend Company.” It has made 107 consecutive quarterly dividend hikes. This retail REIT has witnessed compound average annual dividend growth of 4.3% since its listing on the NYSE.

Moreover, Realty Income has increased its dividend 23 times in the last five years and has a five-year annualized dividend growth rate of 2.99%. Check Realty Income’s dividend history here.

Other Stocks to Consider

Some other top-ranked stocks from the retail REIT sector are Kite Realty Group Trust KRG and Acadia Realty Trust AKR, each currently carrying a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The Zacks Consensus Estimate for KRG’s 2024 funds from operations (FFO) per share has been revised a cent northward over the past two months to $2.05.

The consensus estimate for AKR’s current-year FFO per share has been revised a cent upward over the past two months to $1.28.

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.

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