Realty Income (NYSE: O) stock price has not done well in the past 12 months as concerns about interest rates have remained. Like most REITs, its stock has retreated by more than 18% in the past 12 months. This sell-off has continued this year after the company completed its merger with Spirity Realty.
Realty Income is a beloved REITMost income-focused investors love Realty Income, a company that is known for its monthly dividend payours. It is a dividend aristocrat that has continually hiked its payments for more than 25 year.
The company does that by owning over 12,000 properties in the US and other places like the UK, Spain, and Italy. It is fairly successful, as it has an occupancy rate of over 98%. As a result, it has not been hit substantially by the work-from-home situation that has hit other REITs.
Realty Income achieves this occupancy rate by the fact that most of its assets are single-client properties. Its clients are mostly in the retail industry followed by industrial, sectors that have been resilient in the past few years.
A common denominator for Realty Income is that it is a beloved company among people interested in regular income. Analysts also love it. According to Yahoo Finance, the average target for the stock is $61.52, which is higher than the current $51.
3 of the 19 analysts who cover the company have a strong buy rating while 12 have a hold one. Only 2 analysts have an underperform rating. Most recently, analysts at RBC Capital and Mizuho have all maintained their bullish view while BNP Paribas and Wolfe Research upgraded it.
Despite this bullish view, Realty Income has not done well over the years. For example, the stock price return in the past 5 years has been minus 12% while the S&P 500 has returned 85%. Including dividends and buybacks, Realty Income has risen by 9.67% while the SPY ETF has jumped by 99%.
I’d avoid Realty Income and buy SPY instead
SPY vs Realty Income
Therefore, white Realty Income is a good company, it has not been a good investment over time. As such, I’d prefer investing in a quality diversified ETF like the Vanguard S&P 500 (VOO) or the SPDR S&P 500 (SPY).
While these funds have a lower yield than Realty Income, they are better than it for a few reasons. First, they have a long history of surviving difficult times. For example, they thrived after the dot com bubble, the Global Financial Crisis (GFC) and the recent Covid-19 pandemic. While historical performance is not a guarantee for what to expect in the future, I prefer investing in an asset that has done well before.
Second, these ETFs are highly diversified, which helps sectors to offset each other. While the Magnificent 7 have an outsize role in the S&P 500, the reality is that the ETFs have access to all sectors, which is a good thing.
Realty Income, on the other hand, is a single stock that could be impacted by numerous factors, including an attack by a short-seller. It could also face a wall of maturity now that interest rates have remained at an elevated level.
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