At first glance, there's nothing all that similar between Realty Income (O -1.67%) and Walmart (WMT 0.22%). One is a real estate investment trust (REIT), the other a retailer. But there's an important intersection, since the properties on which Realty Income is focused are largely occupied by retailers. In fact, Walmart is one of the REIT's largest grocery store-related tenants. A comparison between these two related companies is worth close consideration for long-term dividend investors.

Walmart vs. Realty Income: The businesses

Walmart is a retailer known for its big box stores. With low prices and a wide selection, it is a huge draw for consumers. In fact, it has been performing particularly well of late. In the third quarter of 2024, revenues rose a solid 5.5%, with adjusted earnings up nearly 14%. Given the uncertainty that has been surrounding many of its retail peers -- Target saw revenues rise just 1.1% and earnings fall nearly 12% in the same quarter -- Walmart is executing at the head of the pack right now.

Image source: Getty Images.

Realty Income is a landlord, using the net lease approach. Basically, it owns single-tenant properties where the tenant is responsible for most property-level expenses. Although any single property is high-risk since there's only one tenant, across a large portfolio, the risk is pretty low. Realty Income is the largest net lease REIT, with a portfolio of over 15,400 assets. It is also highly diversified, with properties in the U.S. and Europe, along with 27% of its portfolio being outside of the retail sector.

Slow and steady giants

There's one big takeaway here that investors need to fully wrap their heads around. These two companies are giants in their industries. Neither one is likely to provide huge growth over the long term -- it just requires too much investment to move the needle. Both companies could probably come up with the money needed to make large investments. The real problem is finding the opportunities to put huge amounts of money to work. And while Walmart is doing well right now, that's relative to a fairly easy comparison from the prior year, when adjusted earnings rose just 2%.

That said, a better way to view the big-picture story here might be in Walmart's dividend, which has increased at an annualized rate of 2.6% over the past decade. Realty Income's dividend growth was roughly similar. Basically, both companies are tortoises. But that's not a bad thing if you are a conservative income investor, since Walmart is a Dividend King and Realty Income has increased its dividend annually for three decades.

WMT Dividend Yield data by YCharts.

But there's a big difference when it comes to the dividends. Walmart's dividend yield is around 1%, which is even below the miserly 1.2% of the S&P 500 (SNPINDEX: ^GSPC) right now. Realty Income's yield is 5.8%. In fact, Walmart's dividend yield is near the lowest levels of the last decade, while Realty Income's is near the high end of the range over that same span. That suggests that Walmart is expensive right now, while Realty Income might be cheap.

If you are an income investor, Realty Income will probably be more to your liking. If you care at all about valuation, Walmart will probably be a tough stock to buy. To put a single number on that, its price-to-earnings ratio is a lofty 39x today, versus just 15x for the SPDR S&P Retail ETF. Unless you believe that Walmart is suddenly going to turn into a growth stock, despite the already vast scale of its business, you might want to look elsewhere.

Higher yield, similar dividend growth

Could Walmart's growth kick into high gear on a sustained basis? Sure, but that outcome looks like it has already been priced into the stock. Investors should tread with caution. If you are looking for retail exposure, perhaps it would be worth buying a stock with a similar dividend growth history and higher yield. In other words, Realty Income, which leases properties to Walmart and many other retailers, looks like it will win this match-up for most investors (and particularly for those seeking to generate passive income).