Are High Yield Real Estate Income Stocks Too Expensive? Not when you compare it to industry peers.

Real estate income (A -0.05%) is a well-known net lease real estate investment trust (REIT). In fact, it’s about four times larger than its closest competitor. That said, it has one of the highest yields in the net leasing niche at around 5%. Is it still worth buying after a considerable rally? It might be when you compare it to some of the more popular net lease peers.

A quick look at real estate income

Realty Income’s portfolio includes more than 15,400 properties, which is by far the largest collection of net lease assets of any publicly traded net lease REIT. A net lease requires the tenant to pay most of the operating costs at the property level. As noted, the REIT’s $54 billion market cap is multiples of its closest peer. No other net lease REIT comes close to Realty Income’s revenue size.

Image source: Getty Images.

That size comes with other positives. For example, Realty Income has an investment grade balance sheet. Its portfolio spans across the pond in Europe. It owns retail and industrial assets, along with some one-of-a-kind properties like casinos and vineyards. The really big positive, however, is that Income Realty’s size, geographic diversification and financial strength give it advantageous access to the capital markets. This means it can bid aggressively for acquisitions and still make a profit. It also has the ability to do deals (buying portfolios, large single assets or entire companies) that smaller peers might not even consider.

Don’t forget the impressive 29-year track record of annual dividend increases. Keeping in mind that the average REIT has a dividend yield of just 3.7%, using ETF Vanguard Real Estate Index as a proxy, Realty Income looks pretty attractive overall. But the stock is up about 20% in the past three months. Is it too expensive?

A data by YCharts.

What are other net rental options?

If your goal is to maximize the income your portfolio generates today, Realty Income stands out. Only WP Carey has a higher yield among REITs, but you have to consider the dividend cut in early 2024. Some investors will probably find it hard to forgive this transgression, despite the fact that it is driven by a strategic decision to exit the office sector.

O Dividend yield data by YCharts.

Meanwhile, if you use yield as a rough measure of valuation, then REITs like it Essential Property Trust (EPRT 0.82%) and Agree with Realty (ADC 0.03%)with yields of 3.6% and 3.9% respectively, they seem much more expensive. In fact, in Essential Properties Trust’s investor presentation in June, it actually highlighted how expensive it is relative to Realty Income.

At that time, Essential Properties Trust’s price-to-adjusted funds from operations (FFO) ratio using full-year 2024 projections was 15.5 times. This was the highest on the list, followed by Agree at 14.4 times. Realty Income’s earnings figure was 12.5 times. Undoubtedly, real estate income seems relatively cheap. But here is the interesting part. While Essential Properties’ estimated adjusted FFO growth topped the list at 5.5%, Realty Income came in second at 4.4%, followed by Agree at 4.2%. So despite being considerably cheaper, Realty Income is performing just as well as the net lease REITs that investors love the most.

EPRT data by YCharts.

Meanwhile, as the chart above highlights, Essential Properties Trust and Agree Realty outperformed June Realty earnings. So the value gap here has actually widened.

Big boring real estate income is a core holding

Realty Income’s share price was lower and its yield was higher. It may get cheaper again in the future, given that share prices rise and fall over time. But if you’re a conservative dividend investor looking for a reliable net rental REIT, don’t overlook Realty Income because it’s not as cheap as it was a few months ago. It remains one of the most attractively priced stocks in the net leasing niche.