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Here's Why You Need to Buy Realty Income (O) Stock Now
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Realty Income (O - Free Report) is well-poised to benefit from its portfolio of top 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. However, a high interest rate environment is a concern.
What’s Aiding O?
O has a diversified portfolio with respect to the tenant, industry, geography and property type. These assure stable revenue generation for the company. As of Mar 31, 2024, around 44% of Realty Income’s annualized contractual rent came from properties leased to its investment-grade clients.
This retail REIT derived 73% of its annualized retail contractual rental revenues from the tenants with a service, non-discretionary, low-price-point component to their business as of Mar 31, 2024. Such businesses are less susceptible to economic recessions and competition from Internet retailing.
Realty Income is focused on external growth through the exploration of accretive acquisition opportunities and developments. The solid property acquisitions volume at decent investment spreads has aided the company’s performance so far. During the first quarter of 2024, O invested $598 million at an initial weighted average cash yield of 7.8%. In January 2024, Realty Income completed its all-stock merger transaction with Spirit Realty Capital, Inc., adding to its size, scale and diversification, enabling it to expand its scope for future growth.
Moreover, the company expects its 2024 investment volume to reach $3 billion, up from $2 billion guided earlier. This rise reflects the company’s confidence in its business outlook. Management also noted that the rise stems from an improving investment environment, mainly in Europe.
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 5.9 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.
Solid dividend payouts are the biggest enticements for real estate investment trust (REIT) investors, and Realty Income is committed to boosting its shareholder wealth. The company enjoys a trademark of the phrase “The Monthly Dividend Company” and has witnessed compound annual dividend growth of 4.3% since 1994. Moreover, Realty Income has increased its dividend 23 times in the last five years and has a five-year annualized dividend growth rate of 3.05%. Check Realty Income’s dividend history here.
Although shares of this Zacks Rank #2 (Buy) company have declined 2.2% over the past three months, wider than its industry's fall of 1.4%, the revision trend of the Zacks Consensus Estimate for 2024 and 2025 FFO per share indicates a favorable outlook for the stock, with the estimates moving north over the past month. Therefore, the current price level implies a solid entry point.
Image Source: Zacks Investment Research
However, amid persistent macroeconomic uncertainty and high interest rates, consumers’ willingness to spend to some extent is likely to be limited in the upcoming quarters.
A high interest rate environment is a concern for Realty Income. Elevated rates imply higher borrowing costs for the company, affecting its ability to purchase or develop real estate. The company has a substantial debt burden, and its net debt, as of Mar 31, 2024, was approximately $26.3 billion.
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 three 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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Here's Why You Need to Buy Realty Income (O) Stock Now
Realty Income (O - Free Report) is well-poised to benefit from its portfolio of top 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. However, a high interest rate environment is a concern.
What’s Aiding O?
O has a diversified portfolio with respect to the tenant, industry, geography and property type. These assure stable revenue generation for the company. As of Mar 31, 2024, around 44% of Realty Income’s annualized contractual rent came from properties leased to its investment-grade clients.
This retail REIT derived 73% of its annualized retail contractual rental revenues from the tenants with a service, non-discretionary, low-price-point component to their business as of Mar 31, 2024. Such businesses are less susceptible to economic recessions and competition from Internet retailing.
Realty Income is focused on external growth through the exploration of accretive acquisition opportunities and developments. The solid property acquisitions volume at decent investment spreads has aided the company’s performance so far. During the first quarter of 2024, O invested $598 million at an initial weighted average cash yield of 7.8%. In January 2024, Realty Income completed its all-stock merger transaction with Spirit Realty Capital, Inc., adding to its size, scale and diversification, enabling it to expand its scope for future growth.
Moreover, the company expects its 2024 investment volume to reach $3 billion, up from $2 billion guided earlier. This rise reflects the company’s confidence in its business outlook. Management also noted that the rise stems from an improving investment environment, mainly in Europe.
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 5.9 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.
Solid dividend payouts are the biggest enticements for real estate investment trust (REIT) investors, and Realty Income is committed to boosting its shareholder wealth. The company enjoys a trademark of the phrase “The Monthly Dividend Company” and has witnessed compound annual dividend growth of 4.3% since 1994. Moreover, Realty Income has increased its dividend 23 times in the last five years and has a five-year annualized dividend growth rate of 3.05%. Check Realty Income’s dividend history here.
Although shares of this Zacks Rank #2 (Buy) company have declined 2.2% over the past three months, wider than its industry's fall of 1.4%, the revision trend of the Zacks Consensus Estimate for 2024 and 2025 FFO per share indicates a favorable outlook for the stock, with the estimates moving north over the past month. Therefore, the current price level implies a solid entry point.
Image Source: Zacks Investment Research
However, amid persistent macroeconomic uncertainty and high interest rates, consumers’ willingness to spend to some extent is likely to be limited in the upcoming quarters.
A high interest rate environment is a concern for Realty Income. Elevated rates imply higher borrowing costs for the company, affecting its ability to purchase or develop real estate. The company has a substantial debt burden, and its net debt, as of Mar 31, 2024, was approximately $26.3 billion.
Other Stocks to Consider
Some other top-ranked stocks from the retail REIT sector are Kite Realty Group Trust (KRG - Free Report) and Acadia Realty Trust (AKR - Free Report) , 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 three 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.