4 Reasons to Consider Realty Income Stock in 2025

Key Points

• Realty Income’s dividends will become more attractive as interest rates decline.

• Lower rates will also make it easier to buy more properties.

• Its low valuation and high yield will limit its downside potential if the market swoons.

• 10 stocks we like better than Realty Income ›

As the S&P 500 hovers near its all-time highs and looks historically expensive at more than 30 times earnings, it might seem like a bad time to go shopping for new stocks. But dig a bit deeper, you'll find plenty of undervalued stocks that still have a lot of upside potential.

One such value play is Realty Income (NYSE: O), one of the world's top real estate investment trusts (REITs). Let's review the four reasons it's worth buying before 2025 ends.

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Image source: Getty Images.

1. Interest rates are declining

REITs buy a lot of properties, rent them out, and split that rental income with their investors. To maintain a low tax rate, they need to pay out at least 90% of their pre-tax income as dividends. That business model thrives when low interest rates make it cheaper to buy new properties. Lower rates also reduce the yields of fixed-income investments like CDs and T-bills, which drive income investors toward REITs and other higher-yielding dividend stocks.

Realty Income and its REIT peers struggled in 2022 and 2023 as interest rates rose. But in 2024, the Federal Reserve cut its benchmark rates three times. It recently executed its first rate cut of 2025, and it's penciling at least two more rate cuts by the end of the year.

That trend has already reduced the 10-Year Treasury's yield to 4.1%, but Realty Income still pays a hefty forward dividend yield of 5.4% on a monthly basis. That high yield should draw in even more income-seeking investors over the next year.

2. Its business model is evergreen

Over the past four years, Realty Income more than doubled its store count by merging with Vereit and Spirit Realty. Today, it owns roughly 15,600 commercial properties, which are leased out to more than 1,600 different clients in more than 91 separate industries across all 50 U.S. states, the U.K., and seven European countries.

Realty Income mainly rents its properties to recession-resistant retailers. Last year, its top tenants were Walgreens, 7-Eleven, Dollar General, and Dollar Tree, but none of those tenants accounted for more than 3.5% of its annualized rent. Some of those retailers struggled with store closures in recent years, but its stronger tenants are offsetting most of that pressure by opening new stores.

That's why its occupancy rate has not dropped below 96% since its IPO in 1994 -- even as the global economy was rocked by three major recessions. Its year-end occupancy rate actually rose from 98.6% in 2023 to 98.7% in 2024. That scale, diversification, and resilience make it an evergreen play for long-term investors.

Data source: Realty Income. Includes its mergers with VEREIT (2021) and Spirit Realty (2024).

3. It can easily cover its generous dividends

Realty Income, which branded itself as the "monthly dividend company," has raised its payout 132 times since its public debut. Its projected adjusted funds from operations (AFFO) of $4.24 to $4.28 per share for 2025 should easily cover its forward dividend rate of $3.21 per share.

Realty keeps its operating costs low because it's a triple net lease REIT that passes its real estate taxes, insurance costs, and maintenance fees on to its tenants. That's why its AFFO (a standard measure of profitability for REITs) consistently covers its annual dividends.

Data source: Realty Income.

4. It still looks like a bargain

At $60, Realty Income trades at just 14 times this year's projected AFFO per share. That low valuation and high yield should limit its downside potential even if the market pulls back. As inflation cools and interest rates decline, it should purchase more properties as its stabilizing retail tenants open more stores. Those tailwinds should boost Realty Income's AFFO, support more dividend hikes, and attract more income investors. That's why Realty Income is one of the few stocks that is still worth buying in this frothy market.

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Leo Sun has positions in Realty Income. The Motley Fool has positions in and recommends Realty Income. The Motley Fool has a disclosure policy.