Where Will Realty Income Stock Be In 1 Year?

The dividend is approaching a 5% annual yield and that’s pretty attractive. Delivering a constantly increasing dividend is such a point of pride for the company that they even market themselves as the Monthly Dividend Company.

But there’s more to Realty Income than monthly income. Over the past five years, O shares have increased by around 25%, even with the stock down 16% over the past year. Despite that, O stock has moved on a positive trend over the past few months.

Recent acquisitions have driven positive change; Realty Income eyes expansion into Europe and beyond. But the stunning announcement of the purchase of a Boston casino has investors on the fence. This bold new entry into the casino space is certainly a gamble.

So where will Realty Income stock be in 1 year?

27% Revenue Increase YoY

REITs are the simplest and least expensive way to invest in real estate. They are run by property management groups that purchase and oversee the operations of a large collection of properties. When you buy a share of O, you’re buying a small slice of a huge property pie.

That pie is made up of over 12,000 properties in Realty Income’s case, giving the company a market capitalization of over $41 billion. That makes Realty Income one of the largest REITs in the world. It’s also a Net Lease REIT, meaning that the company focuses on properties that will deliver rental income as a rule.

Net Lease REITs are required by law to reward their investors with 90% of their taxable income. That’s why Realty Income has been able to guarantee its dividend and continue to raise it as the company acquires more properties.

In the fourth quarter of 2022, Realty Income reported revenues that beat year-end expectations, showing a 27% increase over last year’s revenue. This led analysts to raise expectations that Realty Income shares will continue a positive trend over the next year.

Sale-Leaseback Deals

Realty Income uses sale-leaseback deals to quickly turn properties into rental-income-producing machines. In a sale-leaseback deal, the company agrees to purchase a property on the condition that the current owner will stay on as a lessee.

This allows the current property owner to benefit from cash flows from the sale of the property, and they don’t have to leave their current location. Realty Income benefits because it’s able to realize immediate rental income without having to wait for a property to be built or for a tenant to move in.

Sale-leaseback deals give Realty Income a new way to acquire properties in a market where it can be difficult to find quality properties to invest in.

Expansion At Home And Abroad

Because of the difficulty in finding investment-grade properties to acquire in the US, Realty Income has looked to expand its reach overseas. This overseas expansion started in 2019 with the purchase of a small chain of UK-based grocery stores. The success of this acquisition led the firm to move into Spain, and other European countries.

Still, the company has opportunities to expand at home, but that will mostly be through mergers and acquisitions. Realty Income made a splash in 2021 when the company announced that it was acquiring Phoenix-based competitor VEREIT.

The company followed that significant expansion with a 2022 deal to purchase CIM Real Estate Finance Trust, bringing another 185 properties into the fold.

Gambling on a Casino

Another major announcement in 2022 was Realty Income’s sale-leaseback deal to purchase Encore Boston Harbor Resort and Casino from Wynn Resorts for a whopping $1.7 billion. This is the first entry into the casino market for Realty Income and it’s a marked deviation from the retail focus of their other properties.

The company expects this deal to pay immediate dividends through increased revenue from the profitable casino. Massachusetts has very few casinos, and gambling, especially sports betting, is on the rise. Add to that the fact that the resort signed a 30-year lease with Realty Income, and the deal looks like a winner that will lock in revenue for years to come.

However, there are some risks in the deal. One of the major benefits of a REIT is diversification. The property management group is able to mitigate risk by owning hundreds or thousands of properties. By investing so much capital in a single property with a single tenant, management is making a huge bet that may not pay off.

If gambling regulations tighten up, public sentiment towards gambling changes, or another pandemic-style health situation takes place, the casino and Realty Income could be in hot water.

Where Will Realty Income Stock Be In 1 Year?

Realty Income is one of the largest and best-known REITs in the world. Buying a share in Realty Income means owning a part of 12,000 properties. The attractive gains the stock has made over the years are bolstered even more by the company’s storied dividend.

While Realty Income has a lot going for it, there are caveats to keep in mind. REITs as a whole have a separate set of risks that other stocks don’t. Since Realty Income is so focused on rental revenue, the loss of tenants or any issues that affect rental income is a major concern. And because it’s traded like a stock, O can still be subject to the ups and downs of the market.

Add in the fact that the heavy investment in one property, the Boston casino, means there is more chance to take a loss. But all in all, it’s hard not to recommend a stock that pays a consistent dividend near 5%. With that in mind and no obvious headwinds in sight, it’s likely that O shares will continue a positive trend over the next 12 months.

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