Investors interested in Realty Income (O 0.81%) typically are attracted to its monthly dividend payment, consistently growing dividend, and robust yield. While the real estate investment trust (REIT) continues to deliver on those fronts, its stock price performance has been lackluster over the past several years. In fact, its stock price is down more than 30% over the past five years, as of this writing.

The stock was slipping once again after the REIT reported its fourth-quarter results and issued disappointing guidance.

Let's take a look at its most recent quarterly report, the safety of its dividend, and when investors can expect the stock to potentially rebound.

A steady quarter

Realty Income has generally turned in pretty consistent results over the past few years. The biggest reason behind the stock's decline hasn't been its operational performance, which has been solid, but instead its share price declines have reflected increasing capitalization rates (cap rates), which have led to decreases in the value of its commercial properties. Cap rates often follow interest rates, and as interest rates spiked a few years ago so did cap rates.

Meanwhile, Realty Income is facing more scrutiny around its customer base. Three of the company's top-four tenants -- Dollar General, Walgreens Boots Alliance, and Dollar Tree -- have been struggling. Dollar stores have been facing difficult conditions due to the struggles of their lower-income customer bases, inflation, and competition from Walmart. Walgreens has been dealing with drug reimbursement pressures and lower front-end store sales. As a result, it has begun closing unprofitable stores. Combined, these three tenants account for nearly 10% of Realty Income's contracted rent.

Turning to the REIT's Q4 results, its revenue climbed 24% to $1.34 billion, helped by its January 2024 acquisition of Spirit Realty and new property investments. Same-store rental revenue increased 0.8% in the quarter, while its occupancy rate was 98.7%, the same as last quarter and up slightly from a year ago.

Industrial properties once again were a bright spot, with 2% same-store rental growth in the quarter. Casino properties same-store rental revenue rose 1.7%, while retail was up 0.5% and other properties, which include data centers, was up 0.7%. Motor vehicle dealerships were one of the worst-performing categories in the quarter, down 10.1%, while casual restaurants fell 4%.

Realty Income was aggressive in the quarter deploying capital, making $1.72 billion in investments. This included $1.3 billion in real estate, with $988.6 million of that deployed in the U.S. The REIT invested $149.4 million in new properties under development. It also sold 80 properties for $138.1 million in proceeds during the quarter.

The company's adjusted funds from operations (AFFO) per share increased 4% to $1.05. AFFO measures the amount of cash flow a REIT can generate from its operations. Realty Income prefers this metric because different depreciation assumptions do not impact it and thus it is a more standardized metric across the REIT industry.

Realty Income forecast AFFO per share of $4.22 to $4.28, with same-store rental growth of 1%. It expects occupancy to be more than 98%. Meanwhile, it is looking to deploy $4 billion in investment during the year. Analysts, however, were looking for AFFO of $4.32 for the year. The company said its guidance takes into consideration potential tenant credit issues and that just under 5% of its portfolio is on its credit watch list. However, it noted that being on this list does not mean a credit event will occur, and it recently took a tenant off the list.

Image source: Getty Images.

A growing dividend and a new buyback

In February, Realty Income raised its monthly dividend by 1.5% month over month, or 4.5% year over year, to $0.268. That equals $3.216 on a yearly basis, good for a forward yield of 5.7%. The company is currently on pace for its 110th straight quarterly dividend increase in Q1.

Realty Income's dividend remains well covered by its AFFO, which is one of the best measures to determine its safety. Its AFFO payout ratio for the year was 74.6%, demonstrating a solid dividend coverage ratio.

Interestingly, the company approved a $2 billion stock buyback program in February. Realty Income tends to sell stock through an at-the-market (ATM) program in order to fund its real estate investments, including raising $1.8 billion last year through ATM sales. The REIT has not bought back any shares in the past five years. The buyback authorization could be an indication that management thinks one of the best investments it can make is now in its own stock.

Can Realty Income stock rebound?

Realty Income currently trades around its lowest price-to-tangible-book-value ratio, which is the valuation of the properties minus its liabilities.

O Price to Tangible Book Value data by YCharts

Realty Income's valuation could reflect some caution regarding its dollar store and pharmacy tenants, but thus far the company has not seen any big occupancy or same-store rental pressure. Meanwhile, with the Federal Reserve more in a cycle of cutting interest rates rather than raising them, cap rates and the value of its properties should at the very least remain steady.

With guidance looking conservative and a historically cheap stock price, Realty Income's stock could finally be set up to outperform after years of underperformance. While the economy could be a risk, Realty Income is still skewed more toward tenants that sell non-discretionary items and the lower interest rates that would accompany any economic weakness could help with cap rates and the value of its properties.

As such, I think investors can accumulate the stock at current levels.