Realty Income (O +0.21%) delivered a performance for the record books in 2022. The real estate investment trust (REIT) completed a record $9 billion of acquisitions. That helped deliver strong earnings growth, allowing the company to continue increasing its attractive dividend.
Despite that spending spree, Realty Income entered 2023 in excellent financial shape. Because of that, the REIT expects to continue growing its portfolio, cash flow, and dividend. With shares down about 8% since the start of last year, it's a great buy right now.
NYSE: O
Key Data Points
A record-setting year
Realty Income acquired $9 billion of income-producing real estate last year. That was about 50% above its guidance for more than $6 billion in property acquisitions. It also obliterated its prior peak of making $6.4 billion in property purchases in 2021 (not accounting for mergers). Realty Income also acquired VEREIT for $13.9 billion in 2021.
Even with that record acquisition volume, the company remained highly selective, only pursuing accretive deals. It closed about 9% of the $95 billion deal volume it sourced during the year.
That combination of volume and selectivity enabled Realty Income to deliver highly accretive growth. The REIT grew its adjusted funds from operations (FFO) by 9.2% per share. That was its highest growth rate since 2013.
The accretive growth enabled Realty Income to continue increasing its dividend. The REIT gave investors a raise each quarter, growing the dividend by 4.7% last year. Meanwhile, it ended the year with a conservative dividend payout ratio of 75.7% of its adjusted FFO.
The capacity to continue growing
Despite higher interest rates and uncertain macroeconomic conditions, Realty Income expects to continue delivering accretive growth in 2023. The REIT anticipates spending over $5 billion on property acquisitions this year. That should grow its adjusted FFO per share from $3.92 in 2022 to a range of $3.93 to $4.03 per share in 2023.
The company has ample financial capacity to fund new deals. Given its conservative dividend payout ratio, it's retaining some cash after paying the dividend to help finance acquisitions. Meanwhile, the company has one of the highest credit ratings in the REIT sector and a low leverage ratio, giving it access to low-cost capital to continue making deals. It also continues to pick the right times to sell stock and raise additional equity capital to fund its growth.
Realty Income also continues to find new sources of growth. While its bread-and-butter property types are freestanding, single-tenant retail properties like grocery stores, pharmacies, and convenience stores, the REIT continues diversifying beyond retail. It has a sizable and growing industrial portfolio. In addition, it has added gaming, indoor vertical farms, and consumer-centric medical properties to its portfolio over the past few months. The company can continue to acquire new property types as it finds accretive deals in attractive sectors.
Realty Income's expansion into consumer-centric medical real estate (e.g., dental, eye, and pediatric care) is noteworthy. It estimates this market at over $2 trillion. Because of that, it has a vast opportunity set to continue making acquisitions.
Realty Income also continues to expand internationally. It made its first transaction in Italy last quarter, adding that country to its growing European platform that also has properties in the U.K. and Spain. The company will likely continue its international expansion as it finds accretive and attractive opportunities.
A top-notch income stock
Realty Income has been an exceptional dividend stock over the years. The REIT has increased its payout 119 times since its public market listing in 1994. With the dividend continuing to grow last year and the share price down, it yields an attractive 4.7%. It has even more growth ahead, making it a great buy for income-seeking investors right now.
