Realty Income O is well-poised to benefit from its focus on leasing to service, non-discretionary and low-price-based retailers. Also, accretive buyouts, backed by a healthy balance sheet position, bode well for growth. 

However, macroeconomic uncertainty and tariff issues remain concerns as these could adversely affect its tenant base, especially those dependent on low-cost imports. Moreover, amid the current apprehensions related to inflation and rate cut projections, Realty Income’s rate sensitivity adds to the woes. 

Shares of Realty Income have risen 3.2% over the past three months against the industry's 9.8% decline. However, analysts do not seem to have an overtly bullish view on the stock now, with the Zacks Consensus Estimate for 2025 FFO per share remaining unchanged over the past month at $4.29.

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What’s Aiding Realty Income?

Realty Income has demonstrated solid growth and diversification, evolving from a traditional net lease operator into a leading REIT with a broad portfolio across various industries and regions. With tenants representing 89 distinct industries and a weighted average remaining lease term of 9.3 years, the company has established a robust foundation. O derived 91% of its annualized retail contractual rental revenues from the tenants with a service, non-discretionary, low-price-point component to their business as of Dec. 31, 2024. Such businesses are less susceptible to economic recessions and competition from Internet retailing. Moreover, the company targets industrial properties leased to industry leaders, mainly investment-grade rated companies, providing more reliable streams of income.

Realty Income’s growth strategy appears promising, fueled by its increasing global footprint, especially in Europe, which paves the way for sustained expansion. For 2024, the company allocated $3.9 billion in investments, achieving an initial weighted average cash yield of 7.4%. O now expects a full-year 2025 investment volume of approximately $4 billion. Moreover, with the company estimating the total addressable market for net lease real estate investments in the United States of $5.4 trillion and another $8.5 trillion in Europe, Realty Income has a solid investment opportunity.

Realty Income’s move into non-traditional asset classes, including gaming and data centers, highlights its strategic focus on future growth. Notable investments like Encore Boston Harbor and Bellagio Las Vegas, coupled with a partnership with Digital Realty DLR for data center investments, reflect its strategic pursuit of high-growth opportunities. 

With robust cash flows generated from 15,621 properties spanning all 50 U.S. states, the U.K. and six other European countries as of Dec. 31, 2024, along with a strong balance sheet and A3 /A- credit ratings by Moody’s & S&P, “The Monthly Dividend Company” has delivered 23 dividend increases over the past five years. This track record underscores its resilience and solidifies its appeal as a reliable, income-focused investment for shareholders. This S&P 500 Dividend Aristocrats index member has delivered 30 consecutive years of rising dividends and 110 consecutive quarterly increases. O has witnessed compound average annual dividend growth of 4.3% since 1994.

What’s Hurting Realty Income?

Realty Income’s rent growth may face headwinds from tenant bankruptcies, while ongoing tariff uncertainties could place additional pressure on retailers within its portfolio, potentially weighing on overall performance.

The company’s bad debt provision rose to 75 basis points from 50 in 2024, driven by difficulties with a few struggling tenants, many acquired through M&A transactions. Management noted three key tenants, including a major office tenant, though they anticipate effective rent recapture despite short-term risks. 

Investor worries about inflation play a significant role in driving Treasury yields higher. Since bonds and REITs like Realty Income attract income-focused investors with their high yields, rising bond yields can make bonds more appealing, potentially drawing dividend-focused investors away from REITs.

Stocks to Consider

Some better-ranked stocks from the retail REIT sector are Regency Centers REG and Tanger, Inc. SKT. Regency Centers and Tanger carry a Zacks Rank #2 (Buy) each at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The Zacks Consensus Estimate for Regency’s 2025 FFO per share has been revised four cents upward over the past two months to $4.54.

The consensus mark for Tanger’s 2025 FFO per share has been revised three cents upward to $2.26 over the past two months.

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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Digital Realty Trust, Inc. (DLR) : Free Stock Analysis Report

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Realty Income Corporation (O) : Free Stock Analysis Report

This article originally published on Zacks Investment Research (zacks.com).

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