Where Will Realty Income Stock Be in 5 Years?
Key Takeaways
This retail REIT is a reliable income investment. Realty Income (O -0. 09%), one of the world's largest real estate investment trusts (REITs), is often considered a dependable income investment....
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real estate
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July 6, 2025
05:42 AM
The Motley Fool
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This retail REIT is a reliable income investment
Realty Income (O -0. 09%), one of the world's largest real estate investment trusts (REITs), is often considered a dependable income investment
It sports a forward yield of 5. 6%, it pays its dividends monthly, and it's raised its payout 131 times since its IPO in 1994
As a REIT, Realty Income must distribute at least 90% of its pre-tax income to its investors as dividends to maintain a favorable tax rate
It leases its 15,621 perties to 1,565 different clients in over 89 industries in the U. , and Europe, and its occupancy rate has never dipped below 96%
It's also a capital-light triple net lease REIT -- which means its tenants need to cover their own perty taxes, insurance premiums, and maintenance fees
Image source: Getty Images
Over the past five years, Realty Income's stock price fell 3%
Many other REITs, it struggled in 2022 and 2023 as rising rates made it more expensive to purchase new perties, stirred up macro headwinds for its tenants, and drove some of its income investors toward risk-free CDs and T-bills
But if we include its reinvested dividends, it still dered a total return of 25%
So will Realty Income's stock rally over the next five years as interest rates decline, or does it face other unpredictable challenges
What happened to Realty Income over the past few years
Realty Income merged with VEREIT in 2021 and Spirit Realty in 2024
Those mergers more than doubled its number of perties from 2020 to 2024, but it still maintained a high occupancy rate as it grew its adjusted funds from operations (AFFO) and dividends per
Metric 2020 2021 2022 2023 2024 Total year-end perties 6,592 10,423 12,237 13,458 15,621 Year-end occupancy rate 97. 7% AFFO per $3. 19 Dividends per $2. 17 Data source: Realty Income
Some of Realty's top tenants -- including Walgreens, 7-Eleven, and Dollar Tree -- struggled with store closures over the past few years
However, stronger tenants Dollar General, Walmart, and Depot consistently offset that pressure by opening new stores
Realty Income still doesn't generate more than 3. 4% of its annualized rent from a single tenant, and it locks its tenants into long-term leases with an average term of nearly 10 years
That diversification and stickiness insulates it from economic downturns
What will happen to Realty Income over the next five years
Over the next five years, Realty Income will ly expand in Europe to curb its dependence on the U
Un its leases in the U. , most of its European leases are tethered to the consumer price index, which allows it to raise its rent to keep pace with inflation
It will ly ramp up its investments in data centers to fit from the secular growth of the cloud and AI, and scoop up more perties at favorable prices in sale-leaseback deals (in which es sell their own real estate and lease it back to cut costs)
It could also expand into more experiential -- gyms, res, and restaurants -- to further diversify its portfolio
Realty still generates most of its rental income from the retail sector, but those tenants should face fewer headwinds as inflation subsides and interest rates decline
Lower interest rates should also make CDs and T-bills less attractive and drive more investors back toward REITs
From 2019 to 2024, Realty Income grew its AFFO at a CAGR of nearly 5%
If it continues to grow its AFFO at a CAGR of 5% from 2024 to 2030 -- and still trades at 14 times its trailing AFFO -- its stock price could rise 33% to $77 within the next five years
It should continue to raise its dividends and stay within its historical yield of 4%-6%
So while Realty Income might not consistently beat the S&P 500 -- which has dered an average annual return of 10% since its inception -- it should remain a stable investment for investors who need a reliable of monthly income
That's why I personally own s of Realty Income, and why I think it's a solid long-term play
Leo Sun has positions in Realty Income
The Motley Fool has positions in and recommends Depot, Realty Income, and Walmart
The Motley Fool has a disclosure policy.
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