Check out the latest Realty Income earnings call transcript.

Realty Income (NYSE:O) has been an excellent investment over the years. Since the company's NYSE listing about 25 years ago, Realty Income has generated 15.9% annualized total returns for its shareholders, handily beating the S&P 500 over that time period.

While this is great for people who have owned Realty Income stock for a long time, what can investors expect going forward? Nobody can accurately forecast any stock's future, but having said that, Realty Income's business model makes it a more predictable company than most. So, as a Realty Income shareholder myself with no intention of selling anytime soon, here's an outline of what I expect over the next decade.

Man wearing suit with hands poised above a crystal ball

Image source: Getty Images.

Realty Income's portfolio will get even bigger

The short version of my prediction for the company's portfolio of net-lease real estate is that I think it will get much larger.

Now, the company's acquisition activity won't exactly be a steady stream over the next decade. For example, when the cost of capital is low, as it was a couple years ago when interest rates were at historical lows and Realty Income's stock price was at an all-time high, the company went on quite a shopping spree. On the other hand, if borrowing rates get significantly higher and/or the company's stock price falls, I'd expect acquisitions to slow down a bit.

If I had to put a number to it, I'd expect Realty Income's portfolio (currently at about 5,600 properties) to grow at an annualized rate of about 4% per year over the next decade, which is in line with its recent average. So, I'd roughly expect Realty Income to own about 8,000 properties 10 years from now.

Having said that, I'd advise investors not to get too caught up in Realty Income's growth rate as long as the company is growing responsibly. It's entirely possible that the next decade will be extremely favorable for property acquisitions, or Realty Income could decide to acquire one of its competitors, in which case the portfolio could double or more. On the other hand, if the next decade isn't a great acquisition environment, the portfolio may not grow too much at all. Realty Income's management team has an excellent track record of reading the market's conditions and adapting the growth strategy accordingly, and there's no reason to expect otherwise going forward.

Profits will grow and the dividend will steadily increase

Realty Income has done an excellent job of growing its profitability on a per-share basis over the years. Here's a quick look at the company's FFO (funds from operations -- the REIT version of earnings) from the past few years.


Adjusted FFO

Year-Over-Year Growth

























Data sources: 2018 FFO is based on the midpoint of the company's guidance, and prior years are actual results from Realty Income's press releases.

As a result of this steady growth, I expect the company's dividend growth to continue. Since listing on the NYSE in 1994, Realty Income has increased its dividend a remarkable 99 times at an annualized growth rate of 4.6%. Based on the company's steady FFO growth and increasing economies of scale as its portfolio grows, I don't see this growth rate slowing down. This means that in a decade, I'd expect Realty Income's dividend to grow by roughly 55% from its current level.

Realty Income's stock price will go up and down, but the general direction will be up

It's impossible for me (or anyone else) to predict where Realty Income's stock price will be in a decade. There are simply too many variables, many of which have little to do with the company's performance. For example, rising interest rates tend to put negative pressure on income-based investments like REITs, so if we happen to be in a particularly high-rate environment a decade from now, it's certainly possible that Realty Income's stock price might not rise much at all.

Having said that, I'm confident that Realty Income's intrinsic value will continue to grow over time. As the company's underlying property portfolio generates more income, the market value of the properties will increase. And, through smart acquisition strategies, Realty Income can create even more value for investors.

So while I completely believe that Realty Income's general direction will be upward over time, I don't even want to venture a guess of where its stock price will be in a decade.

One of the most predictable stocks over the long run

The main reason Realty Income is one of the largest holdings in my own stock portfolio is that it's an extraordinarily predictable stock over time. The company's net-lease structure and the recession- and e-commerce-resistant nature of the properties create a steadily rising income stream and minimize vacancies.

So while I have absolutely no idea what Realty Income's stock price will be in a decade, I feel totally confident in saying that Realty Income's dividend will be higher, the company's portfolio will continue to grow, and the stock will produce excellent total returns over the next decade.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.