Realty Income Corporation (O), known as The Monthly Dividend Company, has seen its stock price decline in 2022 amidst broad market turmoil, down nearly 20% year-to-date. However, analysts and investors see reasons for optimism about O’s long-term growth prospects despite near-term headwinds.

Realty Income is a real estate investment trust (REIT) that owns over 11,400 commercial properties leased to around 1,120 tenants across various industries. The REIT focuses on freestanding, single-tenant properties leased under long-term net lease agreements, providing stable and predictable cash flows.

O has paid 625 consecutive monthly dividends since listing on the NYSE in 1994 and grown its dividend for 28 consecutive years. This track record has earned it a place on the Dividend Aristocrats list. The company’s well-located, high-quality real estate assets and strong tenant relationships provide a solid foundation for continued dividend growth.

However, 2022 has proven challenging for real estate stocks like O as rising interest rates lead to higher borrowing costs and increase investor focus on near-term growth over dividend income. Additionally, recession fears have hit the retail sector that makes up a significant portion of Realty Income’s portfolio. These headwinds have exerted downward pressure on O’s share price.

As of October 27th, Realty Income stock is down 19.3% year-to-date, though it has rebounded 14% off its 52-week low of $55.50 reached on September 29th. The stock trades around $68, below its 52-week high of $75.40.

While the bear market has bitten O in 2022, analysts see a strong rebound on the cards looking ahead. Here’s what investors need to know about Realty Income Corporation:

Solid Q3 Earnings Beat Estimates

Realty Income delivered a strong third quarter earnings beat on November 2nd, showing the resilience of its portfolio. Adjusted funds from operations (AFFO) came in at $1.14 per share, handily beating estimates of $1.05. Revenue rose 82% year-over-year to $844 million, surpassing forecasts.

The company collected 99% of contractual rent in Q3, reflecting the quality of its tenant roster. Realty Income has limited exposure to struggling sectors like movie theaters, health clubs, and casual dining. Its largest tenants include Walgreens, 7-Eleven, Dollar General, FedEx, Dollar Tree, and Walmart — defensive names poised to weather a potential recession.

O achieved same-store rent growth of 3.2% in Q3, driven by contractual rent escalations. Portfolio occupancy remained high at 98.9%. During the quarter, Realty Income invested $3.2 billion in property acquisitions at an average cash cap rate of 5.9%. The deals enhance its geographic and industry diversification.

“The consistent performance of our portfolio continued in the third quarter, highlighting the resiliency of our strategy,” said Sumit Roy, President and CEO of Realty Income. “We remain focused on sourcing accretive external growth opportunities.”

Upbeat Guidance Reflects Positive Long-Term Outlook

Alongside Q3 results, Realty Income issued upbeat guidance for 2022 and initial 2023 projections. The company expects 2022 AFFO per share of $4.05 to $4.09, raised at the high end from $4.04 previously. The midpoint of $4.07 represents 5.5% growth year-over-year.

For 2023, O forecasts AFFO per share of $4.19 to $4.24, representing annual growth of 3–4%. Management cited the strength and stability of cash flows from its high-quality real estate portfolio and operations.

Realty Income also expects acquisitions volume of over $6 billion in 2022 and initial 2023 projections of over $4 billion as it continues sourcing attractive external growth opportunities.

This guidance demonstrates O’s confidence in delivering steady growth despite economic uncertainty. The REIT’s strong balance sheet provides a buffer — it maintains modest leverage with ample liquidity and no significant debt maturities until late 2024. Its portfolio metrics remain healthy heading into 2023.

Dividend Set to Keep Growing Through Downturn

Realty Income has paid 625 straight monthly dividends since listing in 1994 and grown its payout 114 times. The company is one of only three REITs in the S&P 500 Dividend Aristocrats Index. O has grown its dividend at a 4.4% compounded annual rate over the past decade.

The REIT recently declared its 626th straight monthly dividend of $0.248 per share, equivalent to an annualized payout of $2.976 per share. At the current stock price, this represents a high 4.4% dividend yield, roughly double the S&P 500 average.

Realty Income’s management remains committed to consistent dividend growth in the years ahead. The well-covered payout represents just 73% of 2022 projected AFFO, providing a wide buffer. Cash flow generated by O’s high-occupancy property portfolio gives the ability to reliably increase the dividend through all market cycles.

Analysts Bullish on Rebound Potential

Top analysts have turned bullish on Realty Income stock following the pullback, seeing substantial upside potential from current levels. The average analyst price target of $77.30 suggests 14% upside for shares over the next 12 months.

Morgan Stanley analyst Ronald Kamdem upgraded O to Overweight in October and placed a $72 price target, seeing an attractive risk-reward. “While macro conditions could keep shares range-bound near term, we see compelling 12-month risk/reward at these levels,” he commented.

In November, RBC analyst Wes Golladay reiterated an Outperform rating on O stock with a $79 target. He expects strong acquisition volumes going forward and sees the recent decline as a buying opportunity. Golladay noted Realty Income’s defensive posture, stating: “We expect asset quality to remain high during an economic slowdown.”

Strong Fundamentals Suggest Buying Opportunity

Realty Income possesses an attractive blend of defensive qualities and growth drivers that makes it a compelling long-term investment. The company’s premium real estate portfolio, investment-grade balance sheet, and disciplined management team equip it to navigate near-term hurdles.

While O stock may remain volatile in the months ahead, its high-single digit AFFO and dividend growth potential position it well for substantial upside over the next 3–5 years. Realty Income represents a blue-chip REIT worthy of a buy-and-hold position. Patient investors could be rewarded handsomely for buying shares at the current discounted valuation.

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