It's one of the most popular real estate investment trusts (REITs) on the market today and pays a monthly, high-yield dividend. It also operates in a sector poised for a serious rebound in the months ahead. So perhaps retail-focused Realty Income (O 0.52%), currently priced at slightly over $66 per share, can hit $100 before the end of this year.
That might be a tall order, though. In its now nearly 30-year history as a publicly traded entity, the REIT's all-time high stock price was just shy of $80 per share. Here's my take on whether it stands a chance of crossing that vaunted $100 level by the time the coming New Year's Eve rolls around.
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A true retail powerhouse
There's no doubt that Realty Income has the size, scope, and prominence to push itself into the Three-Digit Club. It's huge even by the standards of the well-capitalized retail REIT segment, with a dizzying 11,136 properties in its portfolio as of Dec. 31 last year, and a beefy $39 billion market cap.
It's also a model retail REIT in how it manages to grow its business. Regular rent increases are baked into its lease contracts, and it has the financial muscle to not only maintain that portfolio but also expand it constantly. Last year alone, it plowed over $6.4 billion into 911 properties, many of which were under development or in the process of expansion.
Realty Income also has the dosh to do a bit of shopping in addition to portfolio build-outs. Last year, for instance, it completed the acquisition of a fellow REIT, Vereit, in an all-stock deal.
The catch with being such a big player, though, is that it becomes exponentially harder to clock meaningful growth (one reason why large companies like to make acquisitions; they add size quickly).
For 2021 Realty Income was, as ever, profitable and growing. The full year saw the REIT lift its revenue by 26% over the 2020 tally. Meanwhile, normalized funds from operations (FFO, widely considered the most important profitability measure for REITS) lagged only slightly, at a 23% clip.
We should bear in mind that the latter part of 2021 saw the world slowly emerging from what we hope marked the decline f the coronavirus pandemic. The year-over-year comparisons were bound to be favorable. Still, the company has done a fine job growing its business over the years, even if not typically at such high rates.
New month, new payout
For REIT investors, headline fundamentals are only part of the equation. Since REITs, with their comparatively high-yield dividends, are popular with income investors, their payouts really matter. Realty Income has a head start among the pack here because it doles out its distribution monthly as opposed to the much more standard quarterly of so many other dividend stocks.
Since it styles itself as "The Monthly Dividend Company," that frequency -- and the payout itself -- are foundational. Realty Income is a Dividend Aristocrat and then some, as it has declared dividend raises multiple times every year since 1998 (a company is only required to do so once annually to attain Aristocrat status).
While being a monthly paying Aristocrat is a very attractive quality in a dividend stock, it doesn't in itself make Realty Income's payout superior, though.
The company's all-important dividend yield is 4.3% at the moment, which is good compared to non-REIT income stocks but more or less in the middle of the REIT spectrum. It beats Federal Realty Investment Trust's 3.6% and Digital Realty Trust's 3.4%, for example. But it's eclipsed by the nearly 5% of National Retail Properties and W.P. Carey's muscular 5.4%.
Breaking the $100 barrier
So with all this considered, does Realty Income have a good shot at hitting the $100 mark this year?
For all of its advantages, its power, and the lure of its dividend, I would say no. I feel the recovery in the retail sector due to the apparent fading of the coronavirus pandemic is already baked into the stock's price. I don't think that, across the next three quarters, Realty Income's business will grow dramatically and unexpectedly high enough to shoot its value more than 50% skyward.
Don't get me wrong, I like Realty Income very much. I would be very pleased for the company and its many shareholders if it were to climb to unprecedented stock price levels. But it's a massive operator in a retail sector that, outside of the occasional scary global pandemic, rarely sees monster growth/recovery spurts.
So if I had to gaze into my crystal ball, I'd probably witness a rising share price... although not to heights as lofty as $100. At least not by the end of this year.
