During the past month, stock market movements have largely been correlated with the latest news around President Donald Trump's planned tariffs. With so much volatility at the moment, many investors are looking for steadier opportunities that may not be so vulnerable to the latest tariff-related developments.
Dividend stocks can be a good way to insulate your portfolio during times of turmoil. Nevertheless, investors need to be careful about which dividend stocks they may choose to buy.
With a juicy dividend yield of 5.7%, Realty Income (O 3.47%) looks tempting right now. Let's break down what makes Realty Income unique and explore why passive income investors should feel safe about the company's ability to continue its generous dividend policy.
NYSE: O
Key Data Points
What does Realty Income do, and who does the company serve?
Realty Income is a retail real estate investment trust (REIT). Roughly 20% of the company's portfolio is composed of convenience and grocery stores, while another 15% is split among drug stores, auto services, and dollar stores.
Some of the company's largest tenants include Dollar General, Walgreens, Dollar Tree, FedEx, CVS, Home Depot, and Walmart. Between 2000 and 2024, Realty Income's median occupancy rate was 98.2%. To put this into perspective, the median among S&P 500 REITs was 94.2% over the same time period.
One of the aspects that has helped Realty Income command such high occupancy rates is its concentration on thrift and middle-market retailers and other recession-proof industries. During the Great Recession in 2007-2009 and the COVID-19 recession in 2020, Realty Income's occupancy rates hovered between 97% and 98%.
Image source: Getty Images.
Is Realty Income's dividend safe?
Perhaps the most enticing aspect of an investment in Realty Income, however, is that the company pays its dividend monthly rather than quarterly. Even though Realty Income's tenants are generally resilient during times of economic weakness, you may be wondering if the company's dividend is actually safe. The chart below measures Realty Income's dividend against historical inflation rates. In addition, I've included the last two major recessions in the U.S. -- as indicated by the gray columns. Cost-conscious retail tends to perform well during periods featuring high inflation. I think Realty Income's stellar occupancy rates during the past two decades and its steadily rising dividend payments underscore the company's ability to operate from a position of strength regardless of economic conditions.
O Dividend data by YCharts
On top of its impressive occupancy rates, Realty Income has made a number of savvy acquisitions over the years that have helped the company expand into emerging opportunities such as gaming and data centers. This combination has helped Realty Income generate consistent funds from operations (FFO) over the years, which the company subsequently uses to pay out and raise its dividend. Back in February, the company announced yet another dividend raise -- marking 110 consecutive quarters of increasing the dividend.
In my eyes, Realty Income's business is relatively insulated from economic turbulence, and the company's long-run commitment to reward shareholders makes me confident that its dividend is a safe bet right now.
Is Realty Income stock a good buy right now?
The chart below illustrates Realty Income's price-to-FFO multiple. The company's current price-to-FFO ratio of 14.3 is hovering around its lowest levels in nearly a decade.
Fundamental Chart data by YCharts
I think two big factors are weighing on Realty Income's valuation trends at the moment. The obvious variables at play across the entirety of the capital markets are how tariffs may affect prices (inflation) and what that could mean for economic growth. Regarding company-specific concerns, I think some investors may have their doubts about Realty Income's growth strategy featuring acquisitions in non-core markets.
I see both of these concerns as short-sighted. As we explored above, Realty Income has navigated through multiple periods of economic distress in the past and did so while continuing to reward shareholders. Moreover, I am personally encouraged by the company's strategy to broaden its footprint beyond traditional retail. Data centers, in particular, present a lucrative opportunity for REITs thanks to the artificial intelligence (AI) revolution.
To me, Realty Income is trading for a bargain right now. I think investors should take advantage of the company's attractive valuation and hold onto their shares for the long term while collecting some incredibly reliable dividend income in the process.
