3 Reasons to Buy This Magnificent High-Yielding Dividend Stock and Hold Forever

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Matt DiLallo, The Motley Fool

Sat, Mar 1, 2025, 4:01 AM 5 min read

Realty Income (NYSE: O) recently wrapped up its 30th year as a public company. The real estate investment trust (REIT) has generated a positive total operational return (dividend yield plus earnings growth rate) every single year, with an average of around 11%. A big factor is the company's high-yielding (5.4% average last year) and steadily rising dividend (129 increases since it came public).

The REIT believes three key themes define its ability to deliver ongoing success for shareholders, which CEO Sumit Roy discussed on its fourth-quarter conference call.

A proven record

The first factor driving the REIT's long-term success is "our proven track record of results and returns," stated Roy on the call. In discussing that first theme, the CEO commented: "Our 2024 results are a testament to the platform we have built. One that is able to deliver against a variety of macroeconomic backdrops, underscored by positive AFFO per share increases every year in our 30-year history as a public company save one."

Last year, the REIT grew its AFFO per share by 4.8% in what was another challenging period for commercial real estate due to persistently high inflation and interest rates. Those market conditions forced Realty Income to remain disciplined in investing new capital. However, it still found plenty of accretive opportunities as it invested $3.9 billion across 73 transactions at an attractive 7.4% weighted average initial cash yield.

Realty Income was able to use a combination of post-dividend free cash flow, non-core-property sales, and low-cost sources of external capital to fund these accretive new investments. That enabled it to continue growing value for shareholders.

Confident growth

The second theme is "our confidence in continuing to drive growth in our core business over time," stated Roy. He noted:

As we look to 2025, we see an attractive pipeline of investment opportunities across a broad scope of property types, industries, and geographies. Based on current investment spreads and visibility to the deal pipeline, we forecast approximately $4 billion in investment volume for the year. We are well positioned to increase capital deployment based on transactions we see in the marketplace.

Realty Income has one of the strongest financial profiles in the REIT sector, which enables it to continue growing its portfolio. It has a low dividend payout ratio (around 75% of its AFFO), which allows it to retain substantial excess free cash flow to fund accretive new investments. It's also one of only eight REITs with two bond ratings of A3/A- or better. That gives it greater access to capital and better terms than lower-rated REITs. It can also continue to divest properties tied to lower-quality tenants and recycle that capital into those leased to higher-quality ones.

An expandable platform

Finally, Roy discussed the third theme: "the opportunities our platform provides to enter new avenues to generate further value for our shareholders." A key aspect of its strategy has been to be a trusted real estate partner for many of the world's leading companies. That partnership approach often yields repeat business.

Roy highlighted its long-standing partnership with 7-Eleven on the call. Last year, the company closed a $770 million sale-leaseback transaction with the convenience store operator, which is now its top client, at 3.5% of its annualized rent. That was the sixth sale-leaseback it has completed with 7-Eleven since the partnership began nearly a decade ago.

"Another avenue for future growth is our recently announced private capital initiative," stated Roy. He noted it's "an opportunity to further leverage our proven platform to expand our investment opportunities." This strategy will enable the company to raise additional capital from institutional investors. The partnership will help clients invest in income-generating real estate to meet their needs while providing Realty Income with more capital to make acquisitions and an additional income source from management fee income.

A core holding

Realty Income is a great foundational holding for any investor. The REIT has an excellent record of growing shareholder value, which should continue in the future thanks to its ability to continue expanding its portfolio and income streams. It should be able to supply investors with steadily rising dividend income and a growing share price, which will help them increase their wealth over the long term.

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Matt DiLallo has positions in Realty Income. The Motley Fool has positions in and recommends Realty Income. The Motley Fool has a disclosure policy.

3 Reasons to Buy This Magnificent High-Yielding Dividend Stock and Hold Forever was originally published by The Motley Fool

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