1 Magnificent S&P 500 Dividend Stock Down 33% to Buy and Hold Forever

As great as it would be, the stock market doesn't always go higher in a smooth line. The heightened volatility caused by the recent tariff announcements isn't fun, but things happen that impact the market, whether it's tariffs or something else. The good news is that buying stocks in fantastic companies when their prices fall has, historically speaking, been a smart move.

Realty Income (NYSE: O), a leading real estate investment trust (REIT), peaked just before COVID-19 in early 2020 and is still down over 30% today.

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It's tempting to write off stocks that have underperformed for so long, but that could be a mistake. Here is what makes Realty Income magnificent, why the stock has struggled, and why investors should buy and hold shares -- maybe forever.

What makes Realty Income so magnificent

The main reason to invest in Realty Income is its 6% dividend. As REITs do, Realty Income pays most of its income to shareholders as nonqualified dividends. It's popular among dividend investors for its above-average yield and because it pays monthly dividends, making it a steady source of passive income.

Realty Income is one of the best REIT stocks you can buy. It has 15,621 properties and rents to over 1,500 tenants in the United States and Europe. Realty Income specializes in retail properties, so its most common tenants include convenience, dollar, grocery, home improvement stores, pharmacies, restaurants, fitness centers, and more. It uses net leases, meaning tenants are responsible for taxes, insurance, and maintenance.

The company's net lease strategy and diverse portfolio generate remarkably resilient rental revenue. Realty Income arguably faced a worst-case scenario during COVID-19, when lockdowns stressed almost all of its tenants. Yet, Realty Income still paid and raised its dividend through the pandemic, as it has each year since going public, for 32 consecutive years and counting.

Investors have done exceptionally well over the years by reinvesting their dividends. Despite a 30% decline these past five years, Realty Income's lifetime total returns approach 8,000%, running circles around the S&P 500.

Why has the stock stunk for five years if it's so great?

Admittedly, it's been a challenging five years for Realty Income. Since REITs retain very little earnings, they depend on debt and issuing stock to raise funds to acquire properties and grow. The 10-year U.S. Treasury yield, the benchmark that sets interest rates on most debt, has surged over the past several years. It makes debt more expensive to borrow, slowing growth and pressuring profits for companies like Realty Income.

You can see how the stock has often moved opposite of the Treasury rate in recent years:

O data by YCharts

Fortunately, Realty Income has continued growing despite higher rates. The company's funds from operations (FFO) per share increased from $3.29 in 2019 to $4.01 in 2024. The stock may be down over 30%, but Realty Income's business makes almost 22% more money per share now than in 2019.

When share prices go down and profits go up, it's usually a good buying opportunity.

A potential buy-and-hold forever stock

Realty Income's business is timeless, as real estate is virtually disruption-proof. The consumer-facing businesses that Realty Income rents to aren't going away anytime soon, and management has steadily dipped into new markets, such as gaming and data centers, to find growth opportunities. The company has grown at a mid-single-digit rate over the long term, and analysts anticipate that will continue.

Additionally, investors can count on Realty Income's 6% dividend yield. The company's dividend payout ratio is manageable at 80% of FFO, backed by an investment-grade credit rating and a track record of resiliency spanning over three decades. Investors could reasonably expect 10% to 12% annual returns between the company''s growth and dividends.

The last thing you need is the right price -- a sliding stock and growing profits value Realty Income at under 13 times its 2024 FFO. That's a compelling valuation for a business with a high floor, steady growth, and the ability to make you wealthy for decades as you reinvest the dividends.

Adding it all up, Realty Income could be a home run stock in this volatile market.

Should you invest $1,000 in Realty Income right now?

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Justin Pope has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Realty Income. The Motley Fool has a disclosure policy.