Where Will Realty Income Stock Be in 5 Years?

Key Points

• Realty Income is the largest net lease real estate investment trust.

• Although it focuses on owning retail properties, it has a very diversified portfolio.

• Given the company's size, continued diversification is likely to be a key theme over the next years.

• 10 stocks we like better than Realty Income ›

Realty Income (NYSE: O) has a lofty 5.4% or so dividend yield. That's well above the 1.2% of the S&P 500 index and the nearly 3.8% average for the real estate investment trust (REIT) sector. But before you run out and buy this high-yield REIT, here's a look at what is likely to happen to the business over the next five years.

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What does Realty Income do?

Realty Income is what is called a net lease REIT. That means that it owns largely single tenant properties in which the tenant is responsible for most property-level operating costs. This is a great deal for both parties, in what is usually best thought of as a financing transaction.

Essentially, the property seller wants to raise cash for other purposes, like capital investments or expanding its business footprint. It enters a sale/leaseback deal with Realty Income using a net lease structure. That allows it to raise the capital it needs while still retaining effective control of the property. Realty Income gets a reliable tenant that's happy to sign a long-term lease that will normally include regular rent bumps. It's a win/win.

Although any single property is high risk, given there's only one tenant, across a large enough portfolio the risk is fairly low. Realty Income is the largest net lease REIT by far, and its market cap of $54 billion is multiple times larger than its next closest peer. It also happens to own more than 15,600 properties. While there are benefits to being so large, there's also one very notable negative. Realty Income is a slow-growing business because it takes huge transaction volume to move the needle on the top and bottom lines.

What happened and will continue to happen

Realty Income is not ignorant to the size issue it faces. And for many years, it has been working to find new avenues for growth. The first big move was to expand its geographic reach into Europe. Then it started to add different property types to the mix, including casinos and data centers. More recently, it has begun making debt investments and built an asset management business meant to serve institutional investors.

The goal is simple. Given the REIT's size, it has to have as many levers to pull for growth as it can possibly muster. All of these efforts may not play out as expected, but that's OK. The goal is to find a way to keep growing the business and trying multiple approaches will likely yield some attractive options. The ones that I expect to work the best over the next five years are international expansion, data centers, and asset management.

The opportunity in Europe, where Realty Income is focused, is material because net lease properties are still relatively new across the pond. Add in lower interest rates, generally speaking, in Europe versus the United States, and buying more properties "over there" will probably be a key focus.

Data centers will be a more difficult push, but one that is inline with current demand trends thanks to rapid artificial intelligence growth. Importantly, Realty Income is partnering with industry specialists, like Digital Realty, so it doesn't have to go it alone. Given the high demand for data centers, I believe this will be a key growth platform over the next five years.

Asset management isn't actually that big a deal because Realty Income is already doing all of the work needed to provide this service. The difference is that it will likely be buying properties with lower return profiles for asset management customers, like insurance companies and pensions. This has been a key growth platform for other REITs, like industrial-focused Prologis, so there's no reason to think that Realty Income won't make it work, too.

Nothing radically different, but different just the same

In five years, Realty Income is not going to be a totally different REIT. But it will likely fine tune where it puts its capital and what business lines see the most growth. That should result in an even more diversified REIT, with notable growth in Europe, data centers, and asset management. For investors, meanwhile, it should translate into this reliable dividend stock becoming, well, an even more reliable dividend stock.

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Reuben Gregg Brewer has positions in Realty Income. The Motley Fool has positions in and recommends Digital Realty Trust, Prologis, and Realty Income. The Motley Fool recommends the following options: long January 2026 $90 calls on Prologis. The Motley Fool has a disclosure policy.