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4 Reasons to Add Realty Income (O) Stock to Your Portfolio

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·4 min read
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Realty Income Corporation O is focused on external growth by exploring accretive acquisition opportunities. The solid property acquisitions volume at decent investment spreads aids the company’s performance.

Moreover, a well-diversified portfolio with respect to tenant and industry boost the stability of Realty Income’s rental revenues and generate predictable cash flows.

Although shares of Realty Income have gained 3.2% so far in the quarter, underperforming its industry’s rally of 3.7%, the estimate revision trend for 2021 funds from operations (FFO) per share indicates a favorable outlook as the consensus mark has been revised marginally upward over the past month.

Zacks Investment Research
Zacks Investment Research

Image Source: Zacks Investment Research

This Zacks Rank #2 (Buy) stock is poised to rally further and excel in its industry in the near term on several favorable factors. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Let’s Explore What Makes O Stock a Solid Choice:

Portfolio Quality: Realty Income derives 95% of its annualized retail contractual rental revenues from the tenants with a service, non-discretionary and/or a low-price-point component to their business. Such businesses are less susceptible to economic recessions and competition from Internet retailing. This provides more reliable streams of income, which boosts the stability of rental revenues and generates predictable cash flows. Through Sep 30, management noted that Realty Income collected 99.5% of the contractual rent due for the third quarter across the total portfolio.

Realty Income’s solid underlying real estate quality and prudent underwriting at acquisition have helped the company maintain high occupancy levels consistently. Since 1996, the company’s occupancy level has never been less than 96%. As of Sep 30, 2021, its portfolio occupancy of 98.8% expanded 30 basis points (bps) sequentially and 20 bps year over year.

External Growth: Realty Income is focused on external growth by exploring accretive acquisition opportunities. The solid property acquisitions volume at decent investment spreads aided the company’s performance. Recently, O announced that from Oct 1, 2021, through Dec 1, 2021, it acquired properties at a purchase price of $1.1 billion. Considering the $3.8 billion of acquisitions closed since the beginning of the year through Sep 30, 2021, Realty Income’s 2021 investment pipeline represented roughly $6 billion of volume. The acquisitions of well-located commercial properties added to the company’s scale, offering a competitive edge to its net lease industry.

Balance Sheet: Realty Income remains committed to improving its balance-sheet strength and boosting its liquidity. This retail REIT exited the third quarter of 2021 with $3.1 billion of liquidity. The company ended the quarter with modest leverage and strong coverage metrics with a net debt to EBITDAre of 5.0X and a fixed charge coverage of 6.1X that hit an all-time high for the third quarter in a row. Further, Realty Income has a well-laddered debt-maturity schedule with a weighted average maturity of 8.3 years. Manageable near-term maturities and ample liquidity provide the company with the financial flexibility to tide over any mayhem and bank on growth scope. Also, O has a credit rating of A- and A3 from Standard & Poor’s and Moody’s, respectively, enabling it to procure debt financing at attractive costs.

Dividends: Solid dividend payouts are arguably the biggest enticements for REIT shareholders and Realty Income remains committed to that. In November, Realty Income announced a hike in the common stock monthly cash dividend, denoting the company’s 113th dividend increase since its NYSE listing in 1994. Realty Income holds the trademark of the phrase “The Monthly Dividend Company.” It also made 96 consecutive quarterly dividend hikes, which is encouraging. This retail REIT has witnessed compound average annual dividend growth of 4.5% since its listing on the NYSE.

Other Key Picks

Some other top-ranked stocks from the REIT sector include Simon Property Group SPG, Federal Realty Investment Trust FRT and STORE Capital Corporation STOR.

Simon Property Group currently holds a Zacks Rank of 2. Simon Property’s projected long-term growth rate is 9.70%.

The Zacks Consensus Estimate for SPG’s 2021 FFO per share has been revised 2.1% upward in a month. This also suggests an increase of 26.5% year over year.

Currently, Federal Realty sports a Zacks Rank of 1 (Strong Buy). Federal Realty’s projected long-term growth rate is 9.9%.

The Zacks Consensus Estimate for FRT’s ongoing-year FFO per share has moved 3.1% north to $5.40 over the past week, suggesting an increase of 19.5% year over year.

STORE Capital currently carries a Zacks Rank of 2. The 2021 FFO per share for STORE Capital is expected to increase 3.3% year over year.

The Zacks Consensus Estimate for STOR’s 2021 FFO per share has been revised marginally upward in a month.

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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Simon Property Group, Inc. (SPG) : Free Stock Analysis Report

Federal Realty Investment Trust (FRT) : Free Stock Analysis Report

Realty Income Corporation (O) : Free Stock Analysis Report

STORE Capital Corporation (STOR) : Free Stock Analysis Report

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