Realty Income (O 0.59%) and AT&T (T -1.21%) are both popular stocks for income-oriented dividend investors. Realty is one of the world's largest real estate investment trusts (REITs), and AT&T is one of the top telecom companies in America.

The stock for both Realty and AT&T slumped in 2023 as rising interest rates drove investors toward risk-free CDs and T-bills instead of dividend stocks. But in 2024, both stocks warmed up again as declining interest rates drove investors back toward high-yielding dividend plays again. Let's take a fresh look at both companies and see which is the better buy for 2025.

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Realty Income runs a resilient business model

As a retail REIT, Realty Income buys a lot of commercial properties, rents them out to retailers, and splits the rental income with its investors. It needs to distribute at least 90% of its taxable earnings as dividends to maintain a favorable tax rate. It owned 15,457 properties in all 50 states, the U.K., and six other countries in Europe at the end of its latest quarter. It mainly rents those properties to recession-resistant retailers, and its top tenants include Dollar General, Walgreens, Dollar Tree, and 7-Eleven.

Some of those tenants struggled with sluggish sales and store closures over the past few years, yet Realty still ended its latest quarter with a healthy occupancy rate of 98.7%. That metric has never dropped below 96% since its IPO in 1994.

As for its dividends, Realty makes monthly payments and has raised its payout 128 times since its public debut. Its forward yield of 5.8% is also higher than the 10-year Treasury's current yield of 4.5%. It expects its adjusted funds from operations (AFFO) per share to rise 4%-5% to $4.17-$4.21 for 2024 -- which should easily cover its forward annual dividend of $3.17.

At $55, Realty's stock trades at just 13 times the midpoint of its AFFO estimate for 2024. Its prospects should also improve significantly over the next year as lower interest rates reduce the macro headwinds for its tenants, make it cheaper to purchase new properties, and make its dividend more appealing than fixed-income investments.

AT&T is impressing investors with its streamlined growth again

At the beginning of this decade, AT&T was desperately trying to challenge Netflix in the streaming media market. But by pursuing that strategy, AT&T "di-worsified" its business with too many expensive media acquisitions. As a result, its core 5G and fiber businesses struggled and lost ground to its telecom competitors.

But in 2021 and 2022, AT&T spun off DirecTV, Time Warner, and many of its smaller media assets to streamline its business. By doing so, it freed up more cash to expand its 5G and fiber businesses while gradually reducing its debt. In 2023, the "new" AT&T gained 1.7 million and 1.1 million net adds for its postpaid phone and fiber businesses, respectively. Its free cash flow (FCF) grew 19% to $16.8 billion -- which easily covered its $8.1 billion in dividend payments for the full year.

In 2024, it gained another 1.7 million and 1 million net adds for its postpaid phone and fiber businesses, respectively, as its FCF rose 5% to $17.6 billion. That steady growth indicates it can easily sustain its hefty forward dividend yield of 4.9%.

For 2025, AT&T expects its wireless and fiber businesses to continue growing, its FCF (excluding its divestment of DirecTV) to come in above $16 billion, and the generation of an adjusted earnings per share (excluding DirecTV) of $1.97 to $2.07. At $24, AT&T still looks cheap at 12 times the midpoint of that estimate -- and it's well-poised to lock in more income investors as interest rates continue to decline.

The winner: AT&T

I own both of these blue chip dividend stocks, but AT&T looks slightly more attractive than Realty Income because it's less sensitive to interest rates and its core business faces fewer near-term headwinds. So even though AT&T pays a lower forward yield than Realty, it has a better shot at delivering more capital appreciation along with its steady dividend payments.