Is It Too Late to Buy Realty Income Stock?

Investors who have not looked at Realty Income (NYSE: O) in the last few weeks may be surprised to see it at a 52-week high. Despite a growing, stable revenue stream from high-profile clients, the company suffered from a high-interest-rate environment that has pressured its bottom line.

Now, with the prospect of lower interest rates, investors have bid the stock higher by almost 15% since the beginning of July. Still, instead of using this increase as a reason to avoid this stock, investors may want to add shares. Here's why buying Realty Income now could pay off for investors.

The state of Realty Income

For investors looking for an income stock that is boring, stable, and profitable, Realty Income is likely an excellent choice. The company specializes in net leasing of single-tenant commercial properties, meaning the tenant covers maintenance, insurance, and tax costs. That situation frees Realty Income to profit from rents and property appreciation.

Moreover, many businesses have preferred to put their capital to work in other areas besides owning their properties. Thus, the real estate investment trust (REIT) leases to companies as diverse as Walmart , Wynn Resorts , and FedEx .

After acquiring just over 2,000 properties from the merger with Spirit Realty, Realty Income's property portfolio has grown to around 15,500 properties. Additionally, with nearly 99% of these properties leased, the company bought 21 properties in the second quarter of 2024 and had an additional 99 under development.

Another benefit to Realty Income is its monthly dividend. This pays shareholders $3.16 per share annually and has risen at least once yearly since the payout's inception in 1994. Also, despite the rising stock price, shareholders earn a dividend yield of almost 5.3%, comparable to some CD interest rates in today's market. That indicates that it can still serve as an excellent source of income for dividend investors.

Realty Income's financials

Furthermore, Realty Income's condition has improved. In the first half of 2024, it earned almost $387 million in net income, down from $420 million in the first half of 2023, as the Spirit Realty acquisition led to much higher provisions for impairment.

Interest costs of $488 million also took a toll on net income. Assuming the lower interest rates allow Realty Income to refinance debt or fund more projects and acquisitions, lower rates should help boost profits.

Shareholders should remember that the monthly dividend is sustainable at high and low interest rates because Realty Income pays dividends from its funds from operations (FFO) income. As a measure of free cash flow, FFO income does not factor in interest payments, so the $2.01 per share in FFO income in the year's first half covered the $1.55 in dividend costs during that time.

Additionally, despite the 52-week high, investors may forget the peak closing price of $79.88 per share in February 2020. Unfortunately, its stock price never fully recovered, and Realty Income still trades at around a 25% discount from its historical peak, indicating investors are not "too late."

O data by YCharts .

Also, the 56 price-to-earnings (P/E) ratio should not deter value investors. Indeed, the earnings multiple appears expensive on the surface. However, net income factors significant depreciation, a non-cash expense, which would skew the P/E ratio higher.

Conversely, if one measures against FFO, the price-to-FFO ratio is approximately 15. From that perspective, investors are probably buying Realty Income at a bargain price despite the recent upsurge.

Investors are not too late

Ultimately, investors are not only not too late to buy Realty Income but may also be buying it at a great time. Its dividend return of around 5.3% compares well to bank interest returns and is arguably better, given the prospects for payout hikes and stock price appreciation.

Moreover, with the company maintaining high occupancy and payout hikes under more challenging conditions, it is likely a safe place to invest one's money. With lower interest rates likely to boost net income, the odds of the stock rising back to its all-time high and beyond have dramatically improved.

Will Healy has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends FedEx, Realty Income, and Walmart. The Motley Fool has a disclosure policy .