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Is it Wise to Retain Realty Income (O) Stock Right Now?

Realty Income O is well-poised to benefit from its portfolio comprising major industries that sell essential goods and services and are less susceptible to economic uncertainties. Also, accretive acquisitions and a robust balance sheet augur well for the company.

This retail real estate investment trust (REIT), with properties located in all U.S. states, Puerto Rico, the United Kingdom and Spain, derives most of its annualized retail contractual rental revenues from tenants with a service, non-discretionary and/or low-price-point component to their business. These businesses assure a stable revenue generation for Realty Income as they are less susceptible to economic slowdowns and competition from Internet retailing.

Also, O has a diversified tenant base operating in 72 different industries. This enables it to reduce the risks associated with a particular industry, region or asset type.

Realty Income focuses on its external growth through various accretive acquisitions at decent investment spreads. During the six months ended Jun 30, 2022, it invested $3.23 billion in 423 properties and properties under development or expansion, including $1.47 billion in Europe. Moreover, it increased its acquisition guidance for full-year 2022 to more than $6 billion from the prior expectation of more than $5 billion. The acquisitions enhance the company’s scale, offering a competitive edge to its net lease industry.

Additionally, a strong balance-sheet position with ample financial flexibility and a well-laddered debt-maturity schedule supports Realty Income’s expansionary efforts. It exited the second quarter of 2022 with nearly $3.3 billion of liquidity.

Furthermore, solid dividend payouts are arguably the biggest enticements for REIT shareholders and Realty Income remains committed to that. This June, “The Monthly Dividend Company” increased its monthly cash dividend on its common stock from 24.70 cents to 24.75 cents, marking the 116th dividend increase since its NYSE listing in 1994. Given its robust financial position and a lower debt-to-equity ratio compared with the industry, the latest dividend rate is likely to be sustainable.

Shares of Realty Income have gained 7.4% in the past six months against the industry’s fall of 7.3%.

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Zacks Investment Research


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However, over recent years, the adoption of e-commerce by consumers and their preference for online shopping have lowered the demand for physical stores and, in turn, the retail real estate space. This has made retailers opt for store closures, adding to Realty Income’s concerns. To further aggravate the situation, social-distancing norms have forced the reluctant ones, who once favored in-store purchases, to opt for online retailing to avoid physical contact.

Also, a major part of O’s tenant roster comprises single-client properties, which expose it to the risks associated with tenant defaults. This could hamper the company’s rental revenues from that property.

Analysts seem bearish about this Zacks Rank #3 (Hold) stock. The Zacks Consensus Estimate for the company’s 2022 funds from operations (FFO) per share has been revised marginally southward over the past month to $3.91.

Stocks to Consider

Some better-ranked stocks from the REIT sector are Regency Centers REG, Kite Realty Group Trust KRG and EPR Properties EPR, each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The Zacks Consensus Estimate for Regency Centers’ current-year FFO per share has marginally moved northward in the past week to $3.93.

The Zacks Consensus Estimate for Kite Realty Group Trust’s ongoing year’s FFO per share has been raised 1.1% over the past month to $1.82.

The Zacks Consensus Estimate for EPR Properties’ 2022 FFO per share has marginally moved upward in the past two months to $4.77.

Note: Anything related to earnings presented in this write-up represent funds from operations (FFO) — a widely used metric to gauge the performance of REITs.


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