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Is Realty Income Really A 'Buy And Hold Forever' Stock?

Aug. 07, 2018 1:51 AM ETRealty Income Corporation (O)160 Comments


  • Do rising interest rates hurt O?
  • Does the REIT benefit from its equity selling at a premium?
  • Is O a “buy and hold” forever stock?
  • I answer all the above questions and give my verdict on shares.

Realty Income (NYSE:O) is a triple net lease ("NNN") real estate investment trust (REIT) known as the “Monthly Dividend Company.” This company has gained a large following due to its status as a “Dividend Aristocrat,” which is achieved only after increasing dividends for at least 25 consecutive years. In this article, I do a deep dive to determine if it really is true that O can somehow be a better buy when its equity is more expensive, to a surprising conclusion. Despite the appearance of its steadily growing dividend, its future may be anything but. I am bullish on O, but I caution investors from blindly buying and holding forever. Do you know what you are holding?

(Source: Realty Income)

Business Overview

As an NNN REIT, O is essentially a real estate bank. A typical transaction goes as follows: give a large sum of capital to the customer in exchange for their property, and the customer agrees to pay rent equal to about 6.5% of the capital given for about 15 years. When things go well, O just collects rent checks, as the customer still takes care of property taxes, maintenance, and insurance (the triple nets). One should not be blamed for thinking O is just like any other lender in this case. I should point out that unlike the typical bank, O does not have customer deposits as a source of capital for lending, making it more dependent on debt and equity than the typical bank. When things go wrong, however, that is where the real distinction materializes. O would then likely need to dispose of the property so that it can replace it with another income-producing property.

O has gained a reputation as a best-of-breed NNN REIT because it usually sees the best case, as evident from the fact

This article was written by

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Julian Lin is a top ranked financial analyst. Julian Lin runs Best Of Breed Growth Stocks, a research service uncovering high conviction ideas in the winners of tomorrow. 

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Analyst’s Disclosure: I am/we are long SPG. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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