6 Reasons to Buy Realty Income Stock Like There's No Tomorrow | The Motley Fool (2024)

Shares of real estate investment trust (REIT) Realty Income (O -0.81%) have rebounded from their late 2023 nadir, but that doesn't mean there isn't a plethora of reasons to buy the stock. The most notable is the still fairly generous dividend yield of roughly 5.5% (more on that below). While this giant net lease REIT isn't likely to wow you with growth, for most dividend investors, the opportunity to buy it at an attractive price today is still too good to pass up.

Here are six reasons why you should buy Realty Income stock like there's no tomorrow:

1. The dividend yield is near historical highs

Realty Income's dividend yield is 5.5%. You can find higher-yielding REITs and even get close to that yield with a virtually no-risk certificate of deposit (CD) at your local bank. But there's an important nuance here: Despite a rally from 2023 lows, Realty Income's dividend yield is still near the highest levels of the past decade. That suggests the stock is historically cheap.

While a historically high yield alone isn't a good enough reason to buy a stock, it is a good reason to dig into a company to see if it is worth buying. Luckily, Realty Income's story is pretty compelling.

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2. It's the largest net lease REIT

Realty Income is more than twice the size of its next-largest competitor in the net lease REIT niche. A net lease requires tenants to pay for most property-level operating costs. Although any single property is high risk given that net lease assets are usually single tenants, across a large enough portfolio that risk is greatly diminished. Realty Income owns around 15,000 properties following the recent closing of its acquisition of peer Spirit Realty.

It operates at a scale that none of its rivals can compete with. That means it can take on larger deals, including acting as an industry consolidator. But it also provides Realty Income with greater access to capital.

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3. Realty Income has a vital cost advantage

Access to capital is very important for REITs because they tend to pass on most of the cash flow they generate to shareholders in the form of dividends. So REITs are always issuing new shares and selling bonds. Larger companies tend to have an easier time on both fronts.

Add in Realty Income's investment-grade balance sheet, and its cost of capital is very low. This allows the REIT to buy properties at prices that would be difficult for peers to match and supports long-term growth.

4. Realty Income is a slow and steady tortoise

The primary way to grow in the asset-heavy REIT sector is to buy more assets. However, there's a downside here: The bigger a company gets, the harder it is to grow the top and bottom line because it requires larger and larger deals. As the 800-pound gorilla of the net lease sector, Realty Income is at the point where growth is getting harder to achieve. That's a negative.

However, if you are focused on owning dividend stocks that have high yields and reliable businesses, even if the growth is "only" slow and steady, you won't be disappointed by Realty Income. Over the past 29 years, for example, the dividend has grown at a compound annual rate of 4.3%. That's not huge, but it outpaces the historical rate of inflation so the buying power of Realty Income's dividend has increased over time. Having a few high-yield, tortoise-like stocks at the foundation of a dividend portfolio is a very solid investment decision. That reliable dividend growth has been -- and will likely continue to be -- supported by Realty Income's proven ability to make acquisitions.

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5. It has a great dividend history

The 29-year figure above is very specific. That's the number of annual dividend increases that Realty Income has provided its investors. Within that, it has boosted the dividend quarterly for 104 quarters in a row. And if that weren't good enough, the dividend is paid monthly. It's basically as close as you can get to replacing a paycheck via the stock market.

6. Realty Income has a lot of options for the future

There's one more reason to like Realty Income. In recent years, management has been focusing on increasing the number of growth levers the REIT has to pull. For example, it has expanded into Europe, started buying casino assets, ventured into lending-based approaches, and built up vertices within its retail focus around up-and-coming businesses, like retail healthcare. Some of these opportunities are larger than others, but collectively they give management a wide variety of ways to grow.

So, while slow and steady is the name of the game, there's no reason to think that Realty Income's growth is going to stall. Add in its ability to consolidate the net lease sector, and there's likely more opportunity here than many investors think.

There is a lot to like about Realty Income

To be fair, Realty Income won't be a great fit for every investor. As noted, dividend growth is likely to be slow, and there are higher-yielding stocks out there. But if you have a safety-first approach, the combination of pluses and minuses offered by Realty Income leans heavily toward the positive column. And given the historically high yield, now is a good time to consider starting a position in the stock or adding to the one you already have.