The end of the year is a time for reflection and an opportunity to look ahead. It’s normal for investors to already be thinking about the best stocks to buy in the coming year. Ideally, investors should try to identify stocks that will make winning investments in the long term.
But when Buying a stock can affect returns, so considering it here and now also makes sense. One factor some investors may consider is how resilient an investment is to different economic conditions. Finding a stock that can weather the storm of a recession could be attractive to those concerned that a recession could happen in the coming year.
Let’s take a look at a company that has positioned itself well for any macroeconomic outcomes and see if now is the time to buy.
Real estate income (NYSE:O) pays out its dividend monthly. While this isn’t all that unique, it’s something the company takes very seriously. The company has increased its dividend every year for the past thirty years. Paying this consistently growing dividend is so important that Realty Income calls itself “The Monthly Dividend Company.”
Aside from the company’s priority on its dividend, Realty Income must also pay out at least 90% of its income as dividends because it is a real estate investment trust (REIT). This classification further strengthens the reliability of the dividend payment to shareholders. The stock currently has a dividend yield of 5.9%, which is easily better than the S&P500return of 1.3%
Realty Income’s business owns real estate and leases it to clients doing business in 90 separate industries. Most of these leases are triple-net leases, meaning it’s the customers – not Realty Income – who assume responsibility for things like taxes, insurance and maintenance.
Realty Income’s strategy to rent to so many different sectors ensures diversification of the real estate portfolio. If a sector of the economy experiences a recession, it would not have an outsized impact on the REIT because that sector would only make up a small percentage of its portfolio.
The company allocates 73% of its portfolio among businesses such as non-discretionary, value retailers and service-oriented retailers. Think grocery stores, convenience stores, drugstores, etc. In short, even when the economy gets tough, Realty Income’s customers need to be resilient. In fact, the company classifies approximately 90% of its real estate portfolio as “resistant to economic downturns and/or insulated from economic pressures.”
Since its pre-pandemic high, Realty Income stock is down nearly 34%. This follows the broader REIT space, which has yet to regain what it lost during the pandemic. The S&P US REIT Index is down 17% from early 2020.
Despite the stock’s performance, Realty Income has done quite well. Over the past five years, sales have grown by 237%. Funds from operations (FFO), a measure of revenue when it comes to REITs, are up 210% over the same period. When you see that these two figures have tripled in five years, you might be surprised that the stock is down almost 30%.
There’s nothing in Realty Income’s business performance that would lead investors to believe the company is in any kind of trouble. Even with its slower performance in recent years, Realty Income has delivered a compound annual total return of 14.1% since its debut on the public markets in 1994.
Most stocks are going through tougher times and are down double digits. The challenge for investors is to realize strong long-term returns through them. The extended slump for the REIT sector appears to have provided an attractive buying opportunity overall, especially for the strongest companies in the REIT space. Realty Income certainly fits that description, making it a buy for patient investors in 2025.
Consider the following before purchasing shares in Realty Income:
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Jeff Santoro has no position in any of the stocks mentioned. The Motley Fool holds positions in and recommends Realty Income. The Motley Fool has a disclosure policy.
Is real estate income buying, selling or holding in 2025? was originally published by The Motley Fool
