After years of little movement, conditions have finally improved for shares of Realty Income (O +0.94%). Thanks to a recent surge in the stock price, it is trading at its highest point in almost three years.
Such a move can leave investors wondering whether it is too late to buy the stock. Fortunately, it looks like there's still time, and here's why it remains a long-term buy.
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Realty Income and its stock price
Realty Income is not widely known to average investors, but chances are, we have set foot in at least one of its buildings.
It owns more than 15,500 single-tenant, net-leased properties. This means that the tenant pays for maintenance, taxes, and insurance, which keeps cash flows steady. Also, it leases property to companies including Walmart, Wynn Resorts, and FedEx, which helps give it a stable client base.
Moreover, occupancy levels hover at almost 99%. For that reason, it is always working to acquire or develop more properties. Also, the recent cut in interest rates presumably makes more deals feasible, which bodes well for both the company and its shareholders.
Despite those attributes, a surface-level analysis might suggest that investors have missed the boat. Aside from the multiyear high in the stock price, it recently traded at a price-to-earnings ratio (P/E) of 57. For a slower-growing company such as Realty Income, many investors might hesitate to pay a valuation that is close to double the S&P 500 average of 30.
NYSE: O
Key Data Points
However, investors have to remember that Realty Income is a real estate investment trust (REIT), and so it's a real estate stock that must pay at least 90% of its net income in the form of dividends.
Net income includes deductions for mortgage interest, a key feature of real estate holdings. This renders net income less meaningful and tends to shift the focus to funds from operations (FFO), a measure of a REIT's free cash flow.
Its normalized FFO for 2025 was $4.27 per share, meaning it trades at less than 16 times normalized FFO. And that figure is well above the $3.24 per share in annual dividend costs, making its payout sustainable.
Realty Income offers a 4.8% dividend yield, far above the S&P 500's 1.1% average. Furthermore, its monthly payout has risen annually since 1994, meaning income investors should benefit from a much-needed inflation hedge.
Realty Income is a buy
In conclusion, it is not too late to buy Realty Income stock, and buying now could even mean buying early.
What Realty Income may lack in excitement, it more than makes up for in reliability. Its real estate portfolio is bolstered by a stable client base, which funds a generous and rising dividend.
Now, thanks to lower interest rates, more deals become attractive, creating a virtuous cycle that should increase the dividend and stock price over time. That and a low price-to-FFO ratio should give growth and income investors reason to buy more shares even as the stock price rises.
