2 Reasons to Buy This 5% Hand Over Fist Yield REIT Right Now

Over the past few years, investors have been able to generate incredible returns from high-growth opportunities such as artificial intelligence (AI) or weight loss drugs that have taken over the pharmaceutical sector. However, investing in growth stocks is a double-edged sword, as they can fall sharply during volatile economic times.

On the other hand, a stock that has been a consistent winner for long-term investors is Real estate income (NYSE: O). While the real estate investment trust (REIT) may not be as attractive as a breakthrough opportunity in technology or healthcare, I see two reasons for investors to buy this stock right now.

Let’s dig into why Realty Income stock could be headed for takeoff and why it now looks like a profitable opportunity to own the stock.

1. Rate Cuts Could Supercharge Realty Income

On the surface, it may appear that Realty Income’s business as a retail-focused REIT has been in jeopardy over the past two years due to a challenging macroeconomic picture. However, many of the company’s biggest customers are cost-conscious retailers such as general dollar, Walgreens, The dollar treeand Walmart. This makes real estate income more insulated from fluctuations in consumer shopping habits.

What is a more prominent element of risk for retail REITs is that they are sensitive to interest rates. With the Federal Reserve raising interest rates 11 times since 2022, it’s not entirely surprising why some investors might be upset about an investment like Real Estate Income.

However, I believe these concerns can be allayed. Last week, Fed Chairman Jerome Powell gave a noteworthy speech at the Jackson Hole Economic Symposium in which he strongly suggested that changes in monetary policy are on the horizon.

Lower interest rates can benefit Realty Income’s bottom line by making it less expensive for the company to borrow. In turn, Realty Income should have more financial flexibility to fund its growth — namely, strengthening its real estate portfolio.

2. Dividends are reliable, regardless of the economic picture

Perhaps the biggest reason to invest in Realty Income is because of the company’s dividend. Realty Income pays a monthly dividend, which is really attractive to passive income investors.

While the macroeconomic picture has been a bit cloudy over the past couple of years, some of the themes explored will help illustrate that Real Estate Income has been a consistent source of gains over many different economic periods.

Over the past 20 years, Realty Income stock has generated a total return of 732% — outperforming S&P 500. Of course, over the past two decades the US economy has endured tumultuous events such as the Great Recession of 2008 and 2009, as well as the COVID-19 pandemic.

The story continues

This chart is a clear example of why Real Estate Income has been able to consistently outperform the broader market. Since 2000, Realty Income’s occupancy rates have hovered around 98%. In addition, the company’s occupancy rates have barely budged during more volatile economic periods such as the financial crisis of 2008 and 2009, as well as the peak COVID periods of 2020 and 2021. This dynamic demonstrates the reliability and resilience of Realty Pockets Income in the wider pocket. the retail sector.

So is real estate a purchase?

Since the Fed began raising interest rates in March 2022, Realty Income shares have returned an uninspiring 5% — dramatically underperforming the broader market.

To me, it’s clear that rising borrowing costs have hurt the perception of Realty Income’s investment prospects, but not necessarily the actual business. The company’s funds from operations (FFO) have grown steadily despite high interest rates.

For its part, Realty Income has not only continued to fund its monthly dividend, but raised it. In mid-August, Realty Income raised its dividend again — marking a milestone of 650 consecutive months and 107 consecutive quarters since going public in 1994.

I see Realty Income as a reliable source of dividend income regardless of the economic climate. Given the rate cut and the potential for further growth, now seems like a great time to take advantage of Realty Income’s 5% dividend yield and get some shares.

Should you invest $1,000 in Real Estate Income right now?

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Adam Spatacco has no position in any of the listed stocks. The Motley Fool has positions in and recommends Realty Income and Walmart. The Motley Fool has a disclosure policy.

2 Reasons to Buy This Hand Over Fist 5% Yield REIT Right Now was originally published by The Motley Fool