Realty Income (O 0.07%) has been a reliable dividend stock for long-term investors. It's one of the world's largest real estate investment trusts (REITs), it pays monthly dividends, and it's raised its payout 128 times since its IPO in 1994. Its forward yield of 6% is also much higher than the 10-year Treasury's current yield of 4.8%.

But should investors expect Realty Income to generate millionaire-making gains over the next decade? Let's review its business model and historical returns to find out.

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What does Realty Income do?

As a retail REIT, Realty Income purchases a lot of commercial properties, rents them out, and splits the rental income with its investors. REITs must distribute at least 90% of their pre-tax profits to investors as dividends to maintain a favorable tax rate.

At the end of the third quarter of 2024, Realty Income owned 15,457 properties in all 50 states, the U.K., and six countries across Europe. That's up from 13,458 properties at the end of 2023, since it gained a lot of new properties through its acquisition of Spirit Realty in January 2024. Realty Income mainly leases its properties to recession-resistant retailers. Its top tenants include Dollar General (which accounted for 3.3% of its annualized contracted rent in the third quarter), Walgreens (3.3%), Dollar Tree (3.1%), and 7-Eleven (2.5%).

How fast is Realty Income growing?

Some of Realty's biggest tenants -- including Walgreens and Dollar Tree -- struggled with sluggish sales and store closures over the past few years. But it consistently offset that pressure by providing more leases to its stronger retailers, and its occupancy rate has never dipped below 96% since its public debut. It ended the first nine months with a healthy occupancy rate of 98.7%, compared to rates of 98.6% in 2023 and 99% in 2022.

REITs usually report their profit growth through their adjusted funds from operations (AFFO) per share, instead of their earnings per share (EPS). From 2013 to 2023, Realty Income grew its annual AFFO per share at a compound annual growth rate (CAGR) of 5% -- even as the market was rattled by the pandemic, geopolitical conflicts, inflation, and rising rates.

It expects its AFFO to grow 4% to 5% to $4.17 to $4.21 per share for 2024. That should easily cover its forward annual dividend rate of $3.17 per share.

Over the past 20 years, Realty Income's stock has rallied 173%. That might not sound that impressive, but it generated a total return of 732% after including its reinvested dividends. That rally would have turned a $10,000 investment into about $83,200. During that same period, the S&P 500 delivered a total return of about 680%.

But will it generate millionaire-making gains?

At $53, Realty Income's stock still looks cheap at 13 times its estimated AFFO for 2024. That's because elevated interest rates, which make it more expensive for REITs to buy new properties and generate headwinds for their tenants, are compressing its valuations. High interest rates are also making risk-free CDs and T-bills more attractive income investments than REITs and other high-yielding dividend stocks.

But as interest rates decline, Realty Income could command a higher valuation. At the end of 2021, it was trading at $71.59 -- or 20 times its AFFO for that year.

Let's assume Realty Income grows its AFFO at a CAGR of 5% from 2024 to 2034, and trades at a more optimistic 20 times its AFFO by the final year. If that happens, its stock could potentially rally about 157% to $136 over the next 10 years. It would also likely keep raising its dividends to keep its yield around its historical level of about 5%.

That would be a solid long-term gain for income-oriented investors, but it won't spin a fresh $10,000 investment into anything close to $1 million. So while Realty Income is a sound long-term investment, it's definitely not a millionaire-maker stock.