This Piping Hot Real Estate Stock's Dividend Is Yielding More Than 6%, Its Highest in Almost 10 Years, and You May Not See This Opportunity Again

It's been a bad year for real estate stocks. Short-term trends are working against them right now, with high mortgage rates keeping people from buying homes. That's keeping homeowners from selling as well, since they're staying put instead of looking for new homes, limiting inventory.

If that wasn't bad enough, the real estate industry was dealt a new blow this week when a federal jury found that the National Association of Realtors (NAR), as well as other named defendants, worked together to keep commissions artificially high. The negativity spread to all kinds of real estate stocks that shouldn't be affected by the decision.

While the implications of the verdict could affect certain stocks, and investors should tread carefully, this also provides a great opportunity to buy other stocks that found their prices falling for no good reason. Realty Income (O -0.17%), a real estate investment trust (REIT), doesn't operate in residential real estate, but its stock tanked on the news.

Let's get into why Realty Income stock was falling before this, why its dividend yield is sky-high, and why this is an opportunity you don't want to miss.

What does this have to do with Realty Income?

Interest rates have been hiked to stem inflation, and that's been hurting the real estate industry. Homebuyers are reluctant to fork over money knowing how high the interest rates are, because it makes the price of the home that much more expensive. Mortgage rates have been as low as 2.65% in recent years, but they're higher than 7% lately.

Accordingly, monthly payments that would have been around $1,380 prior to the rate hikes would be around $1,750 today. Economists don't expect them to fall meaningfully below 6% until the middle of 2024. Homebuyers are likely to keep waiting for better deals.

This affects commercial real estate trends as well. A Deloitte survey found that 40% of CFOs said they would reduce spending in 2024, and 46% of those said the reduction would come from office space.

Rock-solid, increasing, and now, high-yielding

Realty Income's stock is already bouncing back from the lows it hit immediately after the news about the jury decision broke. While it is certainly affected by current macroeconomic policy and higher interest rates, this particular piece of news wasn't relevant to its business.

Even after its swing back up, Realty Income stock is down 21% this year, and its dividend yields 6.3%. That's its highest yield in 10 years, outside of a short period during the 2020 market crash. Realty Income's yield is usually around 4.5%. That's a high yield at any time, and Realty Income's dividend yield isn't usually as high as those of other REITs.

That yield comes with rock-solid reliability and regular increases. Realty Income pays monthly, and it has paid a dividend for the past 639 months. Moreover, it has raised its dividend for 104 consecutive quarters.

Time to buy Realty Income stock?

Stock declines typically accompany poor performance, bad news, or low investor confidence. When they come from fear, that's your cue to be "greedy when others are fearful," as Warren Buffett has said.

Investors are fearful about the status of real estate, but Realty Income is reporting steady performance. It owns more than 13,000 properties in diversified industries, but its top tenants are mostly in essential categories that aren't likely to default on payments or close up shop. For example, Walmart, a top-15 client that accounts for 1.5% of Realty Income's portfolio, is reporting sales and income increases.

That doesn't mean you should ignore any risks. FedEx, for example, is a top-10 tenant accounting for 2.3% of Realty Income's portfolio, and management has introduced a cost-optimization plan to strengthen its financial position in light of the uncertain macro economy. However, it's not likely to default, even if it makes more deliberate calculations about capital expenditures going forward. This is why Realty Income's diversification is so important.

Realty Income itself has been reporting robust performance, with funds from operations (FFO) -- which REITs often use as a more telling metric than net income -- up from $609 million last year to $688 million this year in the 2023 second quarter. Occupancy remains at 99%, and it invested $3.1 billion in new properties.

Realty Income is a top REIT to own, and this is a great opportunity to buy on the dip and benefit from a very high yield.