Realty Income O, a leading net lease REIT, reported its fourth-quarter and full-year 2024 results early this week. While the company showcased resilience with steady occupancy rates and a strong investment pipeline, its adjusted funds from operations (AFFO) per share miss and macroeconomic headwinds have raised concerns among investors.

O’s fourth-quarter 2024 AFFO per share of $1.05 missed the Zacks Consensus Estimate of $1.06, with total revenues of $1.34 billion for the quarter falling short of the consensus mark of $1.35 billion. However, both AFFO per share and revenues were up year over year. What was disappointing was that the company's 2025 guidance was lower than the consensus estimate. Management projected its 2025 AFFO per share to be in the band of $4.22-$4.28, below the Zacks Consensus Estimate pegged at $4.32. As a result, Realty Income stock has fallen 1.3% since Monday’s close.

Nevertheless, Realty Income maintained an impressive 98.7% occupancy rate as of Dec. 31, 2024, in line with the previous quarter and up 10 basis points year over year. In the reported quarter, the company achieved a rent recapture rate of 107.4% on re-leasing properties. Moreover, O’s investment activity continued at a solid pace, with the company investing $1.7 billion at an initial weighted average cash yield of 7.1% in the fourth quarter.

Amid market uncertainties emanating from policy shifts, economic volatility and anticipations of high inflation and elevated interest rates for a prolonged period fueling investor skepticism toward Realty Income stock, let us break down the key fundamentals and recent developments to evaluate whether the stock remains an attractive investment.

What Aids Realty Income Stock's Growth?

Realty Income maintains a highly resilient portfolio, making it an attractive option for fixed-income investors. Its strong growth and diversification have transformed it from a traditional net lease operator into a top-tier REIT with a broad, multi-sector and geographically diverse asset base. Realty Income’s solid underlying real estate quality and prudent underwriting at acquisition have helped the company maintain high occupancy levels consistently. Despite economic uncertainties, Realty Income maintained an impressive 98.7% occupancy rate as of Dec. 31, 2024. Management expects the 2025 occupancy to remain above 98%.

Realty Income’s growth strategy appears promising, fueled by its increasing global footprint, especially in Europe, which paves the way for sustained expansion. Its diversification into emerging asset classes, such as gaming and data centers, highlights a progressive, future-oriented approach. For 2024, the company allocated $3.9 billion in investments, achieving an initial weighted average cash yield of 7.4%. This included $2.0 billion deployed in the United States at a 6.9% yield, while the remaining $1.9 billion was invested in Europe at an initial yield of 8%. O now expects a full-year investment volume of approximately $4 billion.

The company closed a $770 million sale-leaseback transaction with 7-Eleven, making the retailer its top client, accounting for 3.5% of annualized rent. This marks the sixth such deal with 7-Eleven, demonstrating Realty Income’s strong client relationships.

With strong cash flows from 15,621 properties in all 50 U.S. states, the U.K. and six other countries in Europe, as of Dec. 31, 2024, Realty Income boasts a solid balance sheet and A3/A- credit ratings from Moody’s and S&P. O ended 2024 with $3.7 billion in liquidity and a fixed charge coverage ratio of 4.7. Net debt to annualized pro-forma adjusted EBITDAre was 5.4X. The company is also exploring a private capital initiative to build upon its established platform to unlock new investment opportunities.

Boasting a 5.65% dividend yield and a strong track record of consistent payouts, Realty Income, known as “The Monthly Dividend Company,” continues to be a reliable choice for income-focused investors. Its commitment to dividends remains strong, having increased them for 30 consecutive years. The latest hike was announced recently and involves a sequential increase of 1.5% in its monthly dividend to 26.80 cents, to be paid in March 2025. It has achieved 4.3% average annual growth since 1994.

What Hinders Realty Income's Progress Path?

Despite its strong fundamentals, Realty Income missed AFFO per share expectations by a cent. The 2025 AFFO guidance suggests only 1.4% growth at the midpoint, indicating slower expansion compared to prior years.

The company’s provision for bad debt increased to 75 basis points, up from 50 basis points in 2024. This reflects challenges with a few struggling tenants, many acquired through M&A transactions. Management specifically mentioned that three tenants accounted for the majority of this increase, with one being a large office tenant. While they expect to recapture rents effectively, this remains a short-term risk.

Going forward, tenant bankruptcies could weigh on Realty Income’s ability to drive rent growth, and the uncertainty surrounding tariffs could further impact retailers in its portfolio. Management highlighted concerns about potential tariff increases affecting consumer electronics and apparel retailers, two industries that could face significant cost pressures.

Moreover, concerns over inflation are a key factor pushing Treasury yields higher. For income-focused investors, rising bond yields can make bonds more attractive compared to REITs like Realty Income, which are also sought after for their high yields. This dynamic could lead to dividend-focused investors shifting their preferences away from REITs.

O’s Estimate Revisions and Valuation

Even the estimate revision trends echo similar sentiments. The Zacks Consensus Estimate for 2025 adjusted funds from operations (AFFO) per share has marginally declined over the past week, while the same for 2026 has also moved south over the same time frame.

Image Source: Zacks Investment Research

Find the latest EPS estimates and surprises on Zacks Earnings Calendar.

Realty Income stock is trading at a forward 12-month price-to-FFO of 13.02X, below the retail REIT industry average of 16.29X but higher than its one-year median of 12.89X. Although Realty Income stock is currently trading at a discount compared to its industry peers like Agree Realty Corporation ADC, this valuation disparity might not be as favorable as it seems. The stock has a Value Score of D.

Forward 12 Month Price-to-FFO (P/FFO) Ratio

Image Source: Zacks Investment Research

To Buy or Not to Buy Realty Income Stock?

With a decent dividend yield and a proven history of steady payouts, Realty Income remains a solid pick for dividend-seeking investors. The company’s ability to sustain and grow its dividend even during challenging periods reinforces its attractiveness as a long-term income-generating asset. While Realty Income continues to expand its investment pipeline, its slower AFFO growth, increased tenant risks and interest rate headwinds could limit capital appreciation.

The stock is currently undervalued relative to its peers, but it may be prudent to wait for greater clarity on policy shifts, inflation trends and their potential impact on Realty Income before making any investment decisions. For existing shareholders, holding on to shares could be a sensible approach, given the company's strong history of monthly dividend growth and strategic focus on high-quality property sectors.

Realty Income currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Realty Income currently has an average brokerage recommendation (ABR) of 2.52 on a scale of 1 to 5 (Strong Buy to Strong Sell). Of the 23 brokers covering O, 17 rate it a “Hold,” five call it a “Strong Buy” and one a “Buy”. The average price target of $60.74 suggests a 7.4% upside from the current levels.

Image Source: Zacks Investment Research

Note: Anything related to earnings presented in this write-up represents funds from operations (FFO) — a widely used metric to gauge the performance of REITs.

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

Realty Income Corporation (O) : Free Stock Analysis Report

Agree Realty Corporation (ADC) : Free Stock Analysis Report

This article originally published on Zacks Investment Research (zacks.com).

Zacks Investment Research