Why Shares of Realty Income Are Dropping

Shares of the real estate investment trust (REIT) Realty Income (O -2.32%) have seen a decline of about 2.8% as of 11:44 a.m. ET, following the company's announcement of its fourth-quarter earnings.

Earnings Report: Solid but Guidance Underwhelming

Realty Income posted adjusted funds from operations (AFFO) of $1.05. This figure matched the expectations set by Wall Street analysts, according to FactSet. It's important to note that REITs operate a bit differently from typical companies. They focus on buying and investing in real estate, and to maintain their REIT status, they must distribute at least 90% of their taxable income as dividends. This status comes with certain tax benefits. AFFO, which gauges the cash flow of a business, is a critical metric for investors in REITs. Additionally, Realty Income reported revenues of $1.34 billion, surpassing analysts' consensus estimates.

However, the company provided a guidance for AFFO between $4.22 and $4.28 for 2025, which falls short of the average expectation of $4.30 set by Wall Street. On a positive note, during the quarter, Realty Income increased its quarterly dividend for the 109th consecutive time, raising it by 2.5% to $3.126 per share. Currently, Realty Income boasts a generous dividend yield of 5.78%.

Long-Term Potential Remains Strong

While the lowered guidance may have disappointed some investors, the underlying investment thesis for Realty Income remains robust. The company’s strategy centers on acquiring real estate leased to tenants primarily in non-discretionary, low-cost, service-oriented sectors, as well as non-retail businesses. Some of its notable tenants include Home Depot, BJ's, and FedEx. Additionally, Realty Income is exploring growth opportunities in the expanding data center and gaming markets. As the management pursues its strategic objectives, investors can enjoy a stable and growing dividend income.

Bram Berkowitz has no position in any of the stocks mentioned. The company has positions in and recommends FedEx, Home Depot, and Realty Income, adhering to a disclosure policy.

Realty, Income, Stocks