In our latest SA article published in April for Realty Income Corporation ( O ), we recommended buy when the stock was trading at $58.32. The stock is now trading at $61.48, delivering a total return of 11% (5.4% priceWe write about companies trading at attractive valuations with strong durable competitive advantages. Investment Principles- Invest in companies with consistent earning power and durable competitive advantages.- Invest in companies where we can get a sufficient margin of safety.- We prefer com ...

Core Viewpoint - Realty Income Inc. has shown a positive stock performance with a 7.34% increase over the past month and a 12.70% increase over the past year, leading to optimism among long-term shareholders [1] Group 1: Stock Performance - The current trading price of Realty Income Inc. is $60.30, reflecting a 0.87% increase in the current session [1] - Over the past month, the stock has increased by 7.34% [1] - In the past year, the stock has appreciated by 12.70% [1] Group 2: Price-to-Earnings Ratio Analysis - The P/E ratio is a critical metric for long-term shareholders to evaluate the company's market performance against historical earnings and industry standards [4] - Realty Income Inc. has a P/E ratio of 56.45, which is significantly higher than the aggregate P/E ratio of 34.91 in the Retail REITs industry [5] - A higher P/E ratio may suggest that shareholders expect Realty Income Inc. to outperform its industry, but it could also indicate that the stock is overvalued [5] Group 3: Limitations of P/E Ratio - While the P/E ratio is useful for market performance analysis, it has limitations and should not be used in isolation [8] - A lower P/E may indicate undervaluation or a lack of expected future growth from shareholders [8] - Other factors, such as industry trends and business cycles, should also be considered alongside the P/E ratio for informed investment decisions [8]

Core Viewpoint - Realty Income has declared its second monthly dividend for 2026, maintaining a consistent payout trend over the past decade, with a dividend of $0.27 per share scheduled for payment on February 13, 2026 [1]. Dividend Declaration - The next dividend amount remains unchanged at $0.27 per share, with the ex-dividend date set for January 30, 2026, and the last payment date on January 15, 2026 [2]. Dividend Income Projections - If the dividend schedule remains consistent throughout 2026, the total projected annual dividend income could reach $325, despite fluctuations in past payouts [3]. Yield Comparison - Realty Income, known as "The Monthly Dividend Company," offers a dividend yield of approximately 5.33%–5.36%, which is significantly higher than the average yield of 4.46% in the broader real estate sector [4]. Payout Ratio Concerns - The forward payout ratio stands at 188.8%, indicating that dividends may currently exceed projected earnings, raising questions about long-term sustainability if earnings growth does not improve [5]. Investment Appeal - With a forward annual dividend payout of $3.24 per share, Realty Income remains appealing for investors seeking consistent monthly income, although the high payout ratio may concern those prioritizing dividend durability [6].

Core Insights - Realty Income Corporation (NYSE: O) currently offers a yield of approximately 5.5%, which is appealing to income investors, but yield alone does not indicate the safety of the dividend [1][14] - A checklist is necessary to assess the sustainability of dividends, focusing on key financial metrics rather than just yield [2] Payout Ratio - Realty Income's payout ratio is 74.77%, meaning 75 cents of every dollar earned is distributed as dividends, while 25 cents is retained for other purposes [3][4] - This ratio is within the normal range for REITs (70-80%), but caution is advised if it approaches 90% or exceeds 100% [4] Fixed Charge Coverage - The fixed charge coverage ratio for Realty Income is 4.6x, indicating that for every $1 of debt obligations, the company generates $4.60 in earnings [5][6] - This ratio provides a buffer against rising interest rates or tenant losses, ensuring the dividend remains secure [6] Credit Rating - Realty Income holds an A- rating from S&P and A3 from Moody's, both of which are considered investment grade [7][9] - A strong credit rating allows the company to borrow at lower rates, reducing the risk of dividend pressure due to increased borrowing costs [8][9] Liquidity - As of Q3 2025, Realty Income has $3.5 billion in total liquidity, which includes cash and available credit lines [10][11] - This strong liquidity position enables the company to manage short-term financial challenges without jeopardizing the dividend [11] Occupancy Rate - Realty Income's occupancy rate is 98.7%, with only about 1.3% of its approximately 15,400 properties unoccupied [12] - A high occupancy rate indicates a steady flow of rental income, which is crucial for maintaining dividend payments [12] Summary of Financial Metrics - The checklist for Realty Income includes: - Payout Ratio: 74.77% (Safe Threshold: Below 85%) - Fixed Charge Coverage: 4.6x (Safe Threshold: Above 2.5x) - Credit Rating: A- / A3 (Safe Threshold: Above BBB) - Liquidity: $3.5B (Safe Threshold: Comfortable) - Occupancy: 98.7% (Safe Threshold: Above 95%) [13] - All metrics indicate a solid foundation for the dividend, though ongoing monitoring is necessary [14]

Core Viewpoint - Realty Income (NYSE:O) shares experienced a 7.14% increase over the past month following a slight decline of 0.09% in the previous month [1] Company Summary - Realty Income's stock performance shows a notable recovery with a 7.14% gain in the last month [1] - The previous month saw a minimal loss of 0.09%, indicating a potential turnaround in investor sentiment [1]

Core Viewpoint - Realty Income is viewed as a long-term investment due to its consistent growth, diversification, and strong financial profile, making it a reliable source of passive income [1][6]. Group 1: Company Growth and Diversification - Realty Income has expanded from a single restaurant property in 1969 to over 15,550 properties across North America and Europe, showcasing significant growth [2]. - The company has diversified its platform by adding new geographies, property types, and investment platforms, which has reduced its risk profile and enhanced growth prospects [2]. Group 2: Financial Strength and Dividend Stability - Realty Income maintains one of the top 10 credit ratings in the REIT sector and has a conservative dividend payout ratio of less than 75% of its adjusted funds from operations [3]. - The company has never reduced its dividend payment in over 30 years as a public company, having increased its dividend 133 times since its public market listing in 1994 [3]. Group 3: Market Data and Investment Opportunities - Realty Income's current market capitalization is $56 billion, with a current stock price of $60.74 and a dividend yield of 5.31% [4][5][7]. - The company estimates its total addressable investment opportunity to be $14 trillion, allowing for flexibility in investing where the best opportunities arise [5].

Core Viewpoint - Realty Income is highlighted as a top choice for income investors due to its high dividend yield, consistent dividend growth, monthly payments, stability, and growth opportunities. Group 1: High Yield - Realty Income offers a forward dividend yield exceeding 5.2%, which is attractive for income investors [2] - The high yield is supported by its status as a real estate investment trust (REIT), which must return at least 90% of income to shareholders to avoid federal income taxes [3] Group 2: Dividend Growth - Realty Income has a strong track record of increasing dividends for over 30 consecutive years, with a compound annual growth rate (CAGR) of 4.2% [5] - The REIT has raised its dividend 133 times since its NYSE listing in 1994, including 112 consecutive quarterly increases [6] Group 3: Payment Frequency - Realty Income pays dividends monthly, branded as "The Monthly Dividend Company," and has maintained this for 667 consecutive months [7] Group 4: Stability - The company has achieved 29 consecutive years of positive total operational returns, which combine adjusted funds from operations (FFO) per share growth and dividend yield [8] - Since its NYSE listing, Realty Income's shares have only declined more than the S&P 500 twice during significant market downturns, with a low beta of 0.5 [9] - The stability is attributed to its diversified portfolio of over 15,500 properties across 92 industries, ensuring steady free cash flow [10] Group 5: Growth Opportunities - Realty Income has generated a compound annual total return of 13.7% since its NYSE listing, outperforming the S&P 500 over the long term [12] - The company sees growth potential in Europe and private capital markets, with management believing these initiatives could enhance long-term earnings growth [14]

Investment Themes - The world needs to invest trillions of dollars in AI infrastructure and lower-carbon energy sources, alongside addressing the retirement-income gap due to an aging population [1][2] Brookfield Corporation - Brookfield Corporation is positioned at the intersection of AI infrastructure, wealth products, and real estate recovery, launching its first AI infrastructure fund targeting $100 billion in assets [4][5] - The company anticipates 25% annual earnings growth over the next five years, with a projected $7 trillion investment needed in AI infrastructure over the next decade [5] Kinder Morgan - Kinder Morgan operates the largest natural gas infrastructure platform in the U.S., transporting 40% of the country's gas production, and is well-positioned to meet the growing demand for gas [7][8] - The company expects gas demand to rise by 28 billion cubic feet per day by 2030, with $10 billion in new capital projects planned to enhance its growth outlook [8] Meta Platforms - Meta Platforms is investing heavily in AI, aiming to build personal superintelligence and has launched several AI products, including a popular AI chatbot and AI glasses [9][11] - The company is in the early stages of its AI potential, with significant upside expected for existing apps and new products [12] NextEra Energy - NextEra Energy is a leader in clean energy infrastructure, partnering with AI companies for power supplies and estimating investments of $295 billion to $325 billion in clean power and data centers through 2032 [12][14] Realty Income - Realty Income is a major REIT focusing on income-generating properties, benefiting from the $50 trillion need for U.S. retirement investment and the $14 trillion in corporate real estate [15][17] - The REIT aims to unlock real estate value through sale-leaseback transactions to support its high-yielding monthly dividend [17] Prologis - Prologis focuses on industrial real estate and is leveraging its expertise in energy to develop data centers, with a power pipeline of up to 5.7 gigawatts [18][19] - The company has strong momentum in logistics and digital infrastructure, signing a record 228 million square feet of leases last year, which is expected to drive earnings and dividend growth [19]

Capital Rotation - There has been a notable capital rotation from growth and technology sectors into value and high-quality dividends in recent weeks [1]

Company Performance - Realty Income Corp. (O) closed at $60.85, reflecting a -1.52% change from the previous day, underperforming the S&P 500 which gained 0.55% [1] - Over the past month, shares of Realty Income Corp. have appreciated by 9.03%, outperforming the Finance sector's gain of 0.37% and the S&P 500's gain of 0.71% [1] Earnings Expectations - Analysts expect Realty Income Corp. to report earnings of $1.08 per share, indicating a year-over-year growth of 2.86% [2] - The consensus estimate for revenue is $1.46 billion, representing a 9.08% increase compared to the same quarter last year [2] - Full-year Zacks Consensus Estimates project earnings of $4.26 per share and revenue of $5.73 billion, reflecting year-over-year changes of +1.67% and 0% respectively [3] Analyst Estimates and Market Sentiment - Recent changes to analyst estimates for Realty Income Corp. suggest a favorable outlook on the company's business health and profitability [3] - The Zacks Rank system, which incorporates estimate changes, currently rates Realty Income Corp. as 3 (Hold) [5] Valuation Metrics - Realty Income Corp. has a Forward P/E ratio of 13.97, which is a premium compared to its industry's Forward P/E of 13.81 [6] - The company has a PEG ratio of 3.97, while the average PEG ratio for the REIT and Equity Trust - Retail industry is 2.65 [7] Industry Context - The REIT and Equity Trust - Retail industry is part of the Finance sector and holds a Zacks Industry Rank of 97, placing it in the top 40% of over 250 industries [8]