Real estate investment trusts (REITs) do not typically deliver the level of excitement or returns reminiscent of some tech growth stocks. Instead, they usually focus on offering a steady stream of dividends to attract investors seeking income or wealth preservation.
That is also the case with Realty Income (NYSE: O), though investors should also take note of its growth potential. Thanks to steadily rising stock prices and dividends, investors who bought at the 1994 IPO have earned total returns exceeding 8,400% when including payouts. When considering the business conditions under which it operates and its position in the market, the stock remains a buy despite those gains.
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Understanding Realty Income
Realty Income specializes in single-tenant commercial properties. It has acquired more than 15,600 buildings, which it rents to tenants through a net leasing arrangement. This steadies cash flows since the tenants pay for maintenance, insurance, and property taxes on its buildings.
Moreover, its tenant list is a who's who of customer-facing companies. Home Depot, Dollar Tree, FedEx, and Wynn Resorts are among its clients, reinforcing the company's stability.
Additionally, Realty Income has grown steadily under a variety of conditions. As previously mentioned, stock gains and dividends have driven massive gains over the stock's 31-year history. Even with those gains, it is down about 25% from its pre-pandemic peak as higher interest rates have stoked fear about the stock.
The Realty Income addressable market
Despite those concerns, the company's growth could continue for decades. For now, Realty Income operates in the U.S. and seven European countries, but it has barely scratched the surface of how much it can grow.
The company estimates the global addressable market at $14 trillion. Still, after more than 56 years of existence, its revenue is only a tiny sliver of that potential, coming in at $5.28 billion over the trailing 12 months.
Knowing that, it is little wonder that Realty Income has continued to develop new properties and buy out peers. Among its purchases last year was the acquisition of Spirit Realty, which added more than 2,000 additional properties.
Furthermore, interest rates are higher than many investors would like. However, with occupancy at 98.5%, Realty Income's expansion will likely continue even without a significant drop in interest rates.
Realty Income's dividend
High interest rates have also not stopped its dividend growth. The stock has billed itself as "The Monthly Dividend Company," distributing cash to shareholders every month since 1994, with the payout rising at least once per year since the beginning.
With that, investors now earn more than $3.22 per share in annual payouts. That amounts to a dividend yield of 5.8%, more than quadruple the S&P 500's average yield of around 1.3%.
Additionally, its funds from operations (FFO) income for the 12 months ending in the first quarter of 2025 was $4.22. That was well above the company's dividend obligations, making it likely the payout increases will continue.
Such conditions have allowed Realty Income to increase its payout twice so far in 2025, and as long as business conditions remain relatively stable, the company's dividend should continue to rise.
Buying Realty Income
Despite massive gains, Realty Income's growth story is unlikely to end anytime soon.
Indeed, higher interest rates are a negative for REITs like Realty Income, and its stock performance during the 2020s has likely disappointed bulls and growth investors.
Nonetheless, Realty Income has continued its growth despite higher rates, and the company's addressable market makes it likely that Realty Income's expansion will continue for decades to come.
Moreover, its massive dividend is generous, stable, and likely to continue increasing. Thus, if investors are looking for a high cash return and the potential for eventual appreciation, they will likely succeed with Realty Income stock.
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Will Healy has positions in Realty Income. The Motley Fool has positions in and recommends FedEx, Home Depot, and Realty Income. The Motley Fool has a disclosure policy.
