Realty Income (O -0.62%), known by many as the "monthly dividend stock," has stood out due to its generous payout. It pays its shareholders $3.07 per share annually and recently passed its 121st payout hike since its listing in 1994.

Consequently, its dividend yield now stands at 5.2%. That is well over triple the S&P 500 average of 1.5% and compares favorably to some high-yield CDs. Still, its stock price has only increased marginally over the last five years, which might leave investors questioning whether it is worthwhile to own this stock.

The state of Realty Income

As the name indicates, Realty Income is areal estate investment trust (REIT). This means it has to pay out at least 90% of its taxable income in the form of dividends. In exchange, it does not have to pay income taxes on those earnings. This gives some reassurance to dividend investors, as this is about as close as dividend stocks come to offering guaranteed income.

Realty Income funds this payout by owning and renting commercial, single-tenant properties. Such agreements have become known as triple-net leases because, unlike most rental contracts, the tenant takes responsibility for the insurance, maintenance, and property tax expenses related to the property.

According to the REIT, it serves 85 different industries, and these properties can range from grocery stores to dollar stores to casinos. Walgreens, Dollar General, and Wynn Resorts are among its clients.

Realty Income's financials

The company's financials do not point to significant troubles. As of the end of Q2, around 99% of its more than 13,000 properties are leased, and it invested about $3.1 billion in 710 properties over the last three months.

For the first six months of 2023, Realty Income reported almost $2 billion in revenue, 21% more than in the same period in 2022. Additionally, its funds from operations (FFO) income for the period came in at just under $1.4 billion. This FFO profit rose 13% annually as higher depreciation and impairment provisions offset a considerable increase in operating expenses.

That FFO income amounts to $2.05 per share over the six-month period. Fortunately for its income investors, dividend payments were just under $1.52 per share during that timeframe. That indicates that Realty Income has kept the dividend at a sustainable level.

Moreover, in the first half of the year, Realty Income's board passed two payout hikes, taking the monthly payout from $0.2485 per share to $0.255 per share. An additional increase in Q3 raised the monthly payout to $0.2555 per share. Such increases reinforce the dividend's strength despite a high yield.

Unfortunately, with the rising interest rate environment, investors seemed to have soured on the stock. With online shopping increasingly popular, investors may also be leery of REITs that invest extensively in retail properties.

Due to such challenges, the stock has fallen by nearly 20% over the last year and is up by less than 10% over the previous five years. While that means that the stock sells for about 15 times its FFO income, it leaves growth investors with little reason to take an interest in the stock.

Should I buy Realty Income?

Given Realty Income's current state, it is likely best suited for income investors. Admittedly, higher interest rates and the current condition of the retail real estate market are worries for its investors. Those factors could continue to weigh on the stock price, meaning it could continue to underperform the S&P 500.

Nonetheless, the low FFO multiple probably makes Realty Income a buy. Moreover, the high lease rate, continued investments, and rising dividend point to the stability of the payout and the underlying stock. Hence, investors should count on a significant, growing income stream and a high likelihood of eventual stock appreciation.