Realty Income Corp (NYSE: $O), based in California, is a REIT giant whose revenue is derived from over 13,100 real estate properties. It prides itself on its monthly dividend payouts to its shareholders. Since its stock went public in 1994, the company has increased its dividend payouts 122 times.
Realty Income Corp Stock Performance
Realty Income Corp. offers a forward average annual dividend yield of 6.7%. That is almost double the average of the sector, which is 3.91%. Despite the great dividend payouts, O stock has performed poorly in 2023.
Year-to-date, O stock has lost 27.55% of its value, trading at $46.22 at close on October 30, 2023. One of the reasons for this is that the real estate sector becomes less lucrative at high interest rates.
Commercial real estate in the US has taken a beating, and residential real estate is under great pressure, with interest rates of 8% or higher.
Realty Income Corp Earnings Report
The recent earnings report for fiscal Q2 2023 was a letdown for investors. The stock missed the analysts’ EPS target by 17.13%. It reported an EPS of $0.29, against an expected $0.35. That came as a shock to investors, as the stock had consistently beaten EPS estimates in the previous three quarters.
However, revenue was better than expected, beating analysts by 8.79%. Realty Income Corp reported revenue of $995.29 million, which was higher than the forecast of $914.91 million.
Costly Acquisition of Spirit Realty
Considering the ongoing challenges due to the high interest rate, Realty Income Corp’s announcement that it acquired Spirit Realty (NYSE: SRC) is not ideal. However, Realty Income has taken a bold step with the acquisition.
Spirit Realty focuses on single-tenant real estate, with a portfolio comprising nearly 2000 properties in retail, industrial, and other sectors. According to Summit Roy, CEO of Realty Income, the acquisition will “create immediate and meaningful earnings accretion.” He added that it would enhance Realty’s diversification and the depth of its portfolio.
Soon after announcing the acquisition, SRC stock went up 7.85%, while O stock went down. It signals that investors are not confident about Realty getting a good return on its huge capital outlay of $9.3 billion in an all-stock transaction.
O Stock Forecast
Stock market analysts give O stock a moderate buy rating. The price target is $62.80, an upside of 35.9% based on the current price. Real Income Corp’s next quarterly earnings report drops on November 6, 2023. Given the recent poor numbers reported in Q2, investors will keenly await it. The stock could drop or rise depending on the numbers.
Is Realty Income Stock Worth Buying?
Investors will likely wait on the sidelines to see how Realty Income justifies its costly acquisition of Spirit Realty. The current macroeconomic factors do not favor the real estate sector, specifically the high-interest rate environment.
Analysts, too, are not overly confident about O stock. However, investing decisions are a personal choice based on research. Holding O stock could pay off if Realty Income Corp devises a winning strategy.
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