Realty Income (O) Stock Analysis

I have a little capital to invest over the next few weeks and I am looking to make a splash with my next purchase.  It has been a few weeks since I purchased my last stock and I am starting to get the itch to invest again.  I still have just under $200 to go to achieve my goal of reaching $2,750 in projected dividend income by the end of the year, so I want my next purchase to count.   Don’t worry everyone, I’m not chasing yield, I’ve learned that lesson the hard way.   My focus is shifting to a company that I am shocked is not in my portfolio by now and I may be the only investor in the dividend growth investing community to not own this stock.   It is time to run Realty Income through the Dividend Diplomats’ Stock Screener.

O Logo

About Realty Income

Before diving into the numbers, let’s take a quick tour of Realty Income’s Investor Relations Page to learn about the company.   Realty Income owns over 4,400 properties spread across the United States.   Not only does the company enjoy demographic diversification, but the company’s properties lease to companies that operate in 20+ different industries.  If you spend two minutes on the website you would understand very quickly that management embraces and promotes their diversification among location, property types, and industries (as evidenced by the preceding two sentences).  That’s one of the major advantages Realty Income has over many other competitors that operate in only one sector of the real estate market.

Realty Income is also one of the few companies that pays a monthly dividend.  Man would it be fun to receive a dividend from a company on a monthly basis and regularly get to see the power of dividend re-investing take place.   The one fear of paying a high, regular dividend is the reliability of the dividend income stream.  Realty Income a 98% occupancy rate for their properties and prioritizes maintaining their current tenants to avoid turnover and extended periods of vacancy.   To management, having a stable revenue stream is the key to maintaining their growing, monthly dividend.   Now that  you know a little about company, let’s take a look at the numbers.

Stock Analysis & Other Metrics

There are many other REITs that operate in the same industry as Realty Income.  However, few possess the same level of diversification and therefore, finding a comparable company for the purposes of a stock analysis is difficult.  Therefore, I am going to throw a little curveball at all of you as review the metrics.  Realty Income is not the only REIT on my radar….I am also watching HCP closely as the price continues to fall.  Lanny jumped on the HCP wagon again last week and added to his impressive stake in the company.  Similar to Realty Income, HCP is a diversified REIT that possesses an impressive dividend and holds the title of Dividend Aristocrat.   So let’s see which company is a better fit NOW as we run both Realty Income and HCP through our stock screener.

  1. Price to Earnings FFO below S&P 500 –  While EPS is the standard metric for corporations, REITs use a non-GAAP metric called FFO (Funds From Operations) as the primary earnings metric.  The first item on the stock screener calls for measuring the pricing multiple against the S&P 500 to ensure the stock is trading at a discount compared to the broader market.  However,  this aspect of the metric is not applicable due to the differences between Price to FFO and Price to Earnings.  Therefore, I will just compare the Price to FFO for the two companies in questions.  Realty Incomes’s P/FFO ratio is 17.18X using the annualized Q3 2015 FFO/share figures while HCP’s P/FFO ratio using the same metric is 14.36X.  Based on HCP’s recent performance, it is not surprising that HCP is trading at such a steep discount compared to Realty Income.
  2. Payout Ratio Less than 60%–  Again, this is a metric better built for corporations and not REITs because REITs are required to pay shareholders a significant portion of their earnings.  So again, I will compare the payout ratios of the two companies using the annualized dividend dividend by the Q3 annualized FFO figures.   Using these figures, Realty Income has a payout ratio of 83% and HCP has a payout ratio of 82%.  So no difference between the two companies here.
  3. History of Increasing Dividends – Both REITs have a great track record of increasing their dividend.  Realty Income pays a monthly dividend and is known for increasing their dividend multiple times in a fiscal year.  In 2015, O has increased their dividend four times!  I wouldn’t be shocked if there is one more increase during the year at this rate.    Plus, O has increased their dividend for 72 consecutive quarters and has paid a dividend since the company was founded in 1969.   HCP has also paid an increasing dividend for an extended period of time.  After all, HCP is the only REIT that has earned the prestigious title of Dividend Aristocrat.  Unlike Realty Income, HCP pays a quarterly dividend and only increases their dividend once per year.   One thing is obvious.  Both companies have a management team that is committed to paying a growing dividend income stream and the companies have backed up this assertion over the years.  O Dividend Increases**Image courtesy of Realty Income’s Investor Relations Page
  4. Dividend Growth Rate–  We wrote last year about how powerful the dividend growth rate is and why it is such an important metric.  So let’s take a lok at the 3 and 5 year average dividend growth rate for each company.  Realty Income’s 3 and 5 year growth rate is 9% and 6%, respectively, while HCP sports a 3 and 5 year growth rate of 4% and 4%, respectively.
  5. Dividend Yield – Typically I avoid reviewing the dividend yields of the companies I am analyzing because I don’t want the yield to impact my final decision.  If I avoid this number I can focus on the other metrics that are centered on identifying undervalued dividend stocks with a history of paying a growing dividend.  However, I believe that steps 1 through 4 have validated that both companies are great companies and I should look at all differences between the two in my due diligence.   And right now, their is a large disparity in dividend yield worth pointing out.  At the moment, Realty Income’s dividend yield is 4.82% and HCP’s dividend yield is 6.9%!  Wow, a 2.1!% difference.  As I said, yield won’t be the final factor but that is too large of a difference to ignore.
  6. Next Dividend Payment –  I am writing this analysis as of 11/15/15.  So I wanted to see when I would receive my first dividend check from each respective company.   That’s the beauty of Realty Income and their monthly dividend.  The company declared their next dividend with an ex-dividend date of November 27th and a payment date of December 15th.  So I won’t have to wait too long to receive my first dividend payment from O and the power of dividend reinvestment can begin immediately!  Conversely, I missed the last dividend and wouldn’t receive my first check from the massive healthcare REIT until February 2016!  Sure the yield is juicy now, but will it still be then.  That’s a lot of time when considering I can receive my first dividend from O just 30 days from now.


This may seem like a cop out answer, but I don’t think I could go wrong investing in either company.  I’ll be in great shape whether I decided to initiate a position in Realty Income or add to my current stake in HCP.   Both companies are great companies and would serve any dividend growth investors portfolio well.  So for now, I am going to wait and see what the market gives me over the next few weeks and hope for Mr. Market to take another turn for the worse.  I would like to make a move, but I don’t have to.  So barring anything drastic or a sudden drop in one of the companies on my “Always Buy” list, I will most likely invest in one of these two companies soon.   Who knows, if the Fed decides to increase interest rates and REITs suddenly tank I may scrape together the funds to invest in both companies.  Hopefully I can cut the cord on my cable bill soon and I can continue to fund more purchases like these! The name of the game is adding strong companies to your portfolio that will produce a growing dividend income stream for years to come.  That is the foundation that financial freedom is built on.

Do you own O or HCP?  Are either of the companies on your watch list?  If one is over the other, why?  If you were me, which company would you investing at the moment?  Or should I be focused on other companies?  Thanks everyone I am looking forward to your feedback!



28 thoughts on “Realty Income (O) Stock Analysis

    • John,

      Both are great companies. I love O’s diversification and their monthly dividends. Just a great all around company. I may have to follow your footsteps and investing in O so I can own both as well. Thanks for stopping by!


    • Thanks Ben. I appreciate it. I tried to get to the point here and focus on what matters to me haha I love the power of compounding that results from monthly dividends and it really helps get that dividend snowball rolling and accumulating at a fast pace. Hopefully I will be a shareholder soon so I can benefit from this.

      Thanks for stopping by!


  1. HCP 5 yr dividend yield average is at 5% vs 6.9% right now.
    O 5 yr dividend yield is at 5% vs 4.82% current.
    Realty Income appears pricey at this point based on their respective 5 year dividend yield average metric, HCP is on sale and rightly priced due to the Manor Care issue which is their largest tenant but HCP is doing the right thing on reducing their exposure to Manor Care. Meanwhile, Realty Income is well positioned and have a well diversified portfolio thats why the rich valuation. But just like what you said “I’ll be in great shape whether I decided to initiate a position in Realty Income or add to my current stake in HCP.” and thats why I own both 🙂
    Thanks for the analysis!

    • FFF,

      Thanks for bringing forward that statistic. We usually bring that into our analysis but I left it out. Did you calculate that statistic yourself or were you able to find it somewhere??

      HCP has been getting slammed by this Manor Care issue. But this is a scenario in which O or HCP’s diversification is a huge benefit. Sure, HCP is going to face some short term issues due to their largest tenant. However, since the company is diversified and receives revenue from plenty of other sources, their long-term health is not damaged and they can better whether the storm. It scares me when a REIT only specializes in one sector or is dependent on one major tenant because if something goes wrong with that tenant it will take the whole company down.

      Thanks again for the info!


      • I use Morningstar for the 5 years average yield.
        I noticed you left that metric out and in my eyes it is very important (I evaluate stocks very similar to yours with PE, payout ratio, 5 yr average yield, etc) thats why I was surprised you kinda left it aside. Thats how you know I am lurking around your blog too much hahah!

        • FFF,

          This is going to sound embarrassing, but you have completely blown my mind here. I used to always calculate that figure myself by downloading the stock price history and manually inputting the yields. It took some time, not too much for a company that paid quarterly and increased their dividend once per year. However, the calculation for O would have taken way too long so I didn’t do it for this stock. I have never known that Morningstar has that same statistic. Wow would that have saved some time in the past haha

          I’m amazed that you caught that the statistic was left out of this analysis! I thought I could sneak that one by haha


  2. Bert,
    I currently own O and plan on making it one of my core positions in the future. Hard to argue with it’s consistency and return over the years. However, OHI has really been tempting me here lately. Ever taken a look at OHI?


    • FwF,

      Thanks for stopping by! Hopefully we will see you around frequently! O is just a solid all around company that I want to make one of my core positions, just like you have. I know OHI has some fans in the dividend investing community but I have not had the opportunity to research it in too much detail. Have you performed an analysis? Do you own shares in the company? Maybe I’ll have to take a detailed look at it!


  3. I am behind the power curve on this one too! I appreciate you doing the leg work 🙂

    Not sure when I’ll take the plunge into big O though. One of these days.


    • haha no problem. The best part of this community is that we share knowledge and resources with each other. I’ve made a few decisions based on the research performed by other blogges in the community.

      I’m with you. I’m calculating my entry point. Let’s make a goal of owning a nice stake by the end of 2016! Have a great evening.


  4. Thanks for the post Bert, any time I get around to my monthly purchases I always consider purchasing some Realty Income. Do you know a site that has FFO information ? I always tend to read about the O’s FFO progress in analysis like this but I don’t know of a decent free site that displays that information. Thx

  5. Did you look at the valuation for both? That would surely help making a decision in my point of view. In their sector, two good stocks when looking at metrics.



    • Mike,

      I definitely looked at the valuation. To me, the valuation shows that they both are trading at a discount compared to the market. However, I didn’t want to compare them directly to each other since they are two completely different REITs. However, from a pur P/FFO standpoint, HCP is trading at a lower multiple than O.


  6. I’m long both HCP and O. These days I lean towards putting more into HCP but that’s based on my strong feeling about the costs of health care and health care facilitates skyrocketing in the near future. With life expectancies rising and seniors living longer I believe the senior healthcare facilities and senior housing positions of HCP position it nicely for the future. Still love O though.

    • Chimp,

      I agree with your long term assessment of HCP. That’s why I am confident they will rebound from the short-term issues with their largest tenant. They operate in an industry that is about to become much more popular as the baby boomers continue to retire and transition in to the properties that HCP owns and operates. I still think you can’t go wrong with either though, so we will see what the market gives me over the next few weeks!

      Thanks for stopping by!


  7. I only own health REITs for now. I have VTR, HCN, HCP and CCP (spin off shares). No plans to own O or other REITs at this time even though I have some on my radar. I like AVB long term but not at current prices, OHI and LTC look compelling in the health space and newcomer STAG is looking interesting as well. No doubt, many investors are fleeing REITs because of the world ending with a Fed interest rate hike coming down the pipe. All that does is just give us better buying opportunities with added value and yield in some top quality REITs. So far in November I made 4 REIT buys.

    • Keith,

      I agree, I think the raise in interest rates will provide a great short-term buying opportunity for us investors. It always amazes me how the prices drop for a few days at the hint of an interest rate increase. I don’t believe that these companies haven’t been preparing internally for a rising interest rate environment. There is no way they haven’t considered increased interest rates as they make business decisions, especially because of the long-term nature of owning and operating a property. But hey, what do I know? haha

      I’m not too familiar with AVB. What type of REIT are they? Are they a healthcare company as well? It seems like you are very long in the healthcare facility industry.

      As always, thanks for stopping by!


      • AVB owns apartments across the country in “high density, desirable” areas. Long term I think apartments might also be a good play. For now, just sticking with the health REITs.

        • I was just sifting through AVB’s website and they definitely have some impressive apartment complexes. Maybe worth looking into one day. I’ll say this, I would love to live in one of their apartments haha

  8. Hi Bert. Thanks for the analysis. They are both great companies.

    I think personally I would go with HCP at the moment, because of the cheap valuation. The yield is significantly higher than historical average, and the dividend appears safe. Even if the dividend growth rates remain at 9% for O and only 4% for HCP, it would take 8 years for O to catch up. By then you would have already pocketed all that extra dividend and reinvested it…

    Keep up the good work!

    • Raymond!

      Thanks for stopping by. As I said on your website, welcome to the dividend growth investing community! I like your reasoning. HCP’s yield has definitely shot up because the price has fallen like a rock over the last few months. While I don’t anticipate the yield remaining this high as the stock price should creep back up, hopefully the price remains low long enough to receive a few dividend payments that will DRIP at this insanely low price.

      Either way, I don’t think you could go wrong investing in either company. Two amazing REITs. Have a great evening!


  9. I own O and have not had any regrets with the position. It was one of my first dividend investments when I started this game and I remain happy with it. I’m always adding to it when I have the money available and the price is fair.

    • Jim,

      Thank you so much for stopping by. What a great way to start off your dividend portfolio. That is a rock solid foundation stock to build on. I would love to see how much your position has grown due to dividend reinvestment alone. I’m starting to think that I am nuts for not buying a stake in this company.

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