Market turbulence and uncertainty have been on the rise this year. Tariffs have caused volatility and concerns that we could experience a resurgence in inflation and slower economic growth. Those headwinds could have a big impact on corporate earnings in the coming quarters.
However, they shouldn’t have much effect on the performance of Realty Income (O -0.16%). The real estate investment trust’s (REIT‘s) “ability to deliver reliable and stable performance through varying market conditions continues to be a hallmark of our platform,” commented CEO Sumit Roy in its first-quarter earnings press release. The company expects 2025 to be another year of steady earnings and dividend growth. Realty Income’s ability to deliver stability in a variety of market conditions makes it a smart stock to buy right now.
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As steady as it gets
Realty Income delivered another quarter of reliable earnings and dividend growth. The REIT generated $1.06 per share of adjusted funds from operations (FFO) during the period, a 2.9% increase from the prior year. That rising cash flow enabled the company to continue hiking its dividend. It announced its 110th consecutive quarterly dividend increase in March (and 130th payment boost since it went public in 1994). It has boosted its monthly dividend by 3.4% over the past year, pushing the yield up to more than 5.5%. Meanwhile, it has maintained a very conservative dividend payout ratio for a REIT at 75.1% of its adjusted FFO in the first quarter.
Roy commented on the quarter in the earnings press release. He stated: “Our first quarter results reflect the strength of our portfolio and our ability to deploy capital into high-quality opportunities, particularly in Europe. Our size, scale, and breadth of investments, together with access to various capital sources, remain key advantages and reinforce our ability to drive consistent results.”
Realty Income invested nearly $1.4 billion during the quarter. It invested the bulk of that capital in Europe ($825 million in acquisitions and nearly $70 million in development projects). It focused on investing in Europe because those investments will earn a higher return (7% initial cash yield for acquisitions compared to 6.9% in the U.S.).
Meanwhile, the REIT’s existing real estate portfolio delivered steady results. Its same-store rental revenue increased by 1.3%, driven by contractual rent increases and signing renewal and new leases at higher rates as legacy leases expired (rents on released properties were 3.9% higher than the prior rate on average).
Built to deliver predictable results
Realty Income expects to continue delivering resilient earnings and dividend growth. Roy commented: “Throughout our history, we have strategically expanded and diversified our portfolio across geographies, asset classes, and investment types. This, combined with our high-quality tenant base, ensures the predictability and durability of our cash flows, which has proven to be especially valuable during periods of uncertainty caused by exogenous (external) factors.”
The backbone of Realty Income is its high-quality real estate portfolio. The REIT owns a diversified portfolio of properties secured by long-term net leases with many of the world’s leading companies. That lease structure provides it with very stable cash flow because tenants cover all of a property’s operating costs, including routine maintenance, real estate taxes, and building insurance.
Meanwhile, Realty Income has one of the strongest financial profiles in the REIT sector. Its conservative dividend payout ratio enables it to retain significant excess free cash flow to help fund new property investments. It also has one of the strongest balance sheets in the sector. That provides it with nearly unparalleled access to low-cost capital to fund new property investments.
These factors drive the company’s confidence that it will achieve its 2025 guidance despite the increased uncertainty stemming from the unknown impact of tariffs. Realty Income expects to invest about $4 billion into new properties this year, which will help grow its adjusted FFO to a range of $4.22 to $4.28 per share. That’s about a 2% increase from last year as the REIT continues battling the headwinds of higher interest rates. It could grow even faster if interest rates fall, which would enable it to increase its acquisition volume. The REIT’s rising earnings and low payout ratio should support continued dividend growth.
Delivering dependability amid uncertainty
Realty Income’s diversified real estate portfolio continues to produce stable and steadily rising rental income. The REIT also continues to use its strong financial profile to acquire additional income-generating properties. These factors enable it to continue to grow its high-yielding dividend. Its ability to deliver steady growth no matter the market conditions makes Realty Income a smart buy right now for those seeking stable returns.
Matt DiLallo has positions in Realty Income. The Motley Fool has positions in and recommends Realty Income. The Motley Fool has a disclosure policy.