Realty Income (NYSE: O) has weathered a challenging year, experiencing a 22% decline in 2023, a stark contrast to the S&P 500’s gain of 11%. While this downturn may discourage potential investors, astute long-term visionaries could overlook a valuable opportunity that this real estate company can create in the long run.
With a portfolio of 13,118 commercial properties and a market cap of $34 billion, this REIT is expanding rapidly. It generates reliable cash dividends and has hence earned the name “The Monthly Dividend Company.”
Between 2017 and 2022, the revenue of Realty Income increased from $1.1 billion to $3.3 billion. It has an average target price of $68.13. Wall Street analysts see a 39% upside potential for the stock over the next 12 months. According to TipRanks, the stock is a “Moderate Buy.”
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Strong fundamentals justify its upside potential
Realty’s adjusted funds from operations (AFFO) have also increased, rising from $839 million in 2017 to $2.4 billion by 2022. For non-REITs, AFFO is comparable to net income. It measures the amount of cash available for dividend payments.
The REIT earns rental income by leasing properties to top companies in 85 industries. Among its tenants are Tesco, Walgreens, Wynn Resorts, and FedEx, which are rapidly expanding, bringing more business to Realty.
Furthermore, all of its lease terms are around 9.6 years, implying recurring revenue for the company.
The company made a $950 million investment in acquiring Bellagio Las Vegas in August. In Q2 2023, the company announced it made a total investment of $3.1 billion in 710 properties in the quarter. It had $3.5 billion in cash and cash equivalents at the end of the quarter.
Why is this the best passive income REIT stock now?
In 2020, Realty Income joined the S&P 500 Dividend Aristocrat Index. This group includes companies that have increased their dividends over the last 25 years. It announced another hike in September to $0.2560 per share from $0.2555 per share, marking its 122nd dividend increase since the company went public in 1994. It has a dividend yield of 6.03%, compared to the sector average of 3.9%.
Reality continues to seek out appealing acquisitions to expand its portfolio. It will be able to maintain its dividend payments consistently as long as it continues to grow.
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