I chose to augment my retirement portfolio by purchasing additional shares of this outstanding high-dividend-yielding stock, as I confidently believe in its potential.
I've been consistently growing my position in Realty Income (O: 0.07%) for a few years now. Typically, I'd buy a few shares each month with extra cash from my retirement account. Recently, however, I went all in, significantly boosting my position by over 40%. Here's why I invested heavily in this real estate investment trust (REIT) in my retirement account.
Strong value proposition
Realty Income's stock didn't perform exceptionally well in 20XX, slipping by 7%. The decline in share price pushed the REIT's dividend yield up to around 6%, far exceeding its 5% average over the past decade.
Despite the market's challenges, such as higher interest rates, Realty Income had a solid year. It was on track to increase its adjusted funds from operations (FFO) by 4.8% at the midpoint of its guidance range (around $4.20 per share), which matches its historical median growth rate of approximately 5% annually.
Although higher interest rates have increased the REIT's cost of capital, making it more expensive to fund acquisitions, Realty Income's earnings are still rising. The stock's decline, combined with its growing earnings, has made it an interesting investment at a relatively low price of around $53 per share, trading at about 12.6 times its FFO.
Double catalysts for growth
- Interest Rate Changes: Higher interest rates were the primary reason behind Realty Income's stock decline. However, recent positive news about inflation and interest rates could potentially turn things around. If these trends continue, lower interest rates and a stronger commercial real estate market would make it easier for Realty Income to complete more accretive acquisitions.
- Private Capital Fund: Realty Income is focusing on alternative sources of growth by launching a private capital fund to tap into the private real estate market. The REIT will co-invest in this fund, manage it on behalf of institutional investors, and earn management fee income. This strategy will not only provide additional income but also make acquisitions even more accretive, potentially boosting the company's future FFO growth.
High income and growth potential
Realty Income offers a 6% yielding dividend, which has a long history of steady growth. Since going public in 1994, the REIT has increased its dividend 128 times. With a solid growth rate and increasing dividend, Realty Income could deliver double-digit total annual returns without a significant valuation increase.
Given its attractive value and solid growth potential, I'm confident that Realty Income will contribute to the growth of my retirement account in the coming years.
Based on the strong value proposition and potential for growth, I've started exploring other opportunities for investing in Realty Income. Considering the dividend yield and historical growth, I believe it would be wise to diversify my retirement portfolio by increasing my allocation to this REIT. Additionally, with the double catalysts of interest rate changes and the private capital fund, I see a significant potential for additional income and future FFO growth.