3 reasons to buy real estate income stocks like there’s no tomorrow

For most of 2024, Real estate income (NYSE: O) disappointed many investors. The stock has been in negative territory, down as much as 11.5% year-to-date through mid-April. But the real estate investment trust (REIT) is not a disappointment now.

Since July 1, Realty Income shares are up nearly 17%. And this could be just the beginning. Here are three reasons to buy Realty Income stock like there’s no tomorrow.

1. his dividend (duh)

There is absolutely no way I can’t begin the discussion of why I should buy Realty Income stock without bringing up its dividend. Few stocks compare to a REIT’s dividend program.

First, real estate income pays a monthly instead of a quarterly dividend. He even trademarked it, “The Monthly Dividend Company.” The monthly dividend is a nice addition for income investors.

Second, the dividend is exceptionally juicy. Realty Income’s forward dividend yield is 5.16%. It doesn’t take much stock price appreciation for investors to enjoy market-beating total returns with such a high return.

Third, the REIT has increased its dividend for 29 consecutive years. And we’re not talking about small dividend increases. Since its listing on the New York Stock Exchange in 1994, Realty Income has grown its dividend at a compound annual growth rate (CAGR) of 4.3%.

2. Its reliability

Realty Income’s track record of dividend increases underscores another key reason to buy this stock — its reliability. The company has been in business for 55 years. It successfully withstood several recessions and global crises but emerged stronger.

The REIT’s diversified portfolio helps it to be so reliable. Realty Income has more than 1,550 clients spanning 90 industries. The company estimates that about 90% of its total rent is “resilient to economic downturns and/or insulated from e-commerce pressures.” Approximately 36% of its rent comes from clients with investment grade credit ratings.

Speaking of credit ratings, Realty Income looks solid on that front as well. Moody’s awarded the company an A3 credit rating, while S&P gave it an A- credit rating. Both ratings mean a medium investment grade with a low risk of default.

Real estate income has generated positive earnings per share growth in 27 of the last 28 years. Its stock has grown at a CAGR of 13.5% since 1994. And it has grown with a remarkably low level of volatility: REIT beta vs. S&P 500 it is only 0.5 since its NYSE listing in 1994.

3. Its growth opportunities

Last but not least, Realty Income has strong growth opportunities. In the short term, the anticipated interest rate cut by the Federal Reserve in September should light a fire under stocks. REITs tend to move higher as interest rates fall. However, I think investors should focus even more on Realty Income’s long-term growth prospects.

The story continues

Realty Income’s total addressable market in the US is $5.4 trillion. It has growth opportunities in retail, consumer-focused medical properties and industrial properties. I see data centers as a particularly lucrative growth area.

But REITs have an even bigger opportunity in Europe. The total addressable market in Europe is $8.5 trillion, including $2.6 trillion in the UK alone. If Realty Income could achieve the market saturation in Europe that it has in the US, its enterprise value would skyrocket 11 times.

Can Realty Income fully capitalize on its growth opportunities? We will see. I think an average annual growth in adjusted funds from operations (AFFO) of around 10% over the long term is realistic though. In my view, total investor returns should be pretty good with this increase in AFFO.

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Keith Speights has no position in any of the stocks mentioned. The Motley Fool has positions and recommends Realty Income. The Motley Fool has a disclosure policy.

3 Reasons to Buy Real Estate Income Stocks Like There’s No Tomorrow was originally published by The Motley Fool