Is Realty Income a Buy, Sell, or Hold in 2025?

It's difficult to believe, but a new year is almost upon us. It's not too soon to start thinking about which stocks you'll want to own in 2025, and which holdings you want to leave in 2024. As is always the case, you'll want to make these decisions on a case-by-case basis. So how does real estate investment trust Realty Income (NYSE: O) stack up as we head toward 2025 (and beyond)?

Why Realty Income is so resilient

As a real estate investment trust, Realty Income owns a portfolio of properties, and it regularly distributes the bulk of its rent-driven profits to its shareholders via dividends. By REIT standards, though, it's a bit of an outlier. Whereas most real estate investment trusts specialize in hotels or office buildings or apartment complexes, etc., Realty Income's area of focus is retail space. It owns over 15,000 different retail properties across the U.S. and Europe.

That niche may seem incredibly risky in light of the current condition of brick-and-mortar retail. The ongoing growth of e-commerce continues to diminish the need for physical stores. Coresight Research reports more than 6,000 U.S. storefronts have been shuttered so far this year -- the most since 2020, when the COVID-19 pandemic was up-ending the industry. And even with the growth of e-commerce thus far, the Census Bureau reports that only 16% of this nation's retail spending is done online. The rest is still done in-store, but this leaves brick-and-mortar businesses vulnerable to continued declines in their share of consumers' spending.

However, there are reasons to expect Realty Income to be resilient in the face of the e-commerce trend. Chief among them is the fact that Realty Income is a landlord to some of the world's best-grounded and most resilient retailers. Its top tenants include Walmart, 7-Eleven, Wynn Resorts, and Dollar General. These aren't just businesses with real staying power. These are companies that intend to make the most of their investments in the establishment of new locations.

That's a long way of saying you don't need to worry about Realty Income's underlying operations or its ability to maintain its dividend payments for the foreseeable future.

The bullish argument outweighs the bearish one

But are any REITs smart picks for 2025? After all, interest rates remain relatively high, which not only makes it more expensive for Realty Income to acquire properties, but also undermines retailers' interests in expansion. It might even mean some retailers continue shuttering underperforming stores.

A weakening economy would also broadly work against Realty Income, for obvious reasons. Chief among those is that a decline in consumer discretionary spending would crimp retailers' capacity to continue making rent payments. And again, over 6,000 storefronts have been closed this year already. That doesn't bode well for any aspect of the brick-and-mortar retailing business.

On balance though, there's more upside ahead than not for real estate investment trusts in general, and Realty Income in particular. The Federal Reserve still expects to implement a string of rate cuts through 2026. Further, as Morningstar senior analyst Kevin Brown said recently, "We believe that U.S. REITs will continue to see share price movements that are inverse of interest rate movements."

Meanwhile, Deloitte predicts the growth in the gross domestic product of the United States will slow from a pace of about 2.7% in 2024 to 1.5% in 2025 before slightly improving over the next couple of years. That's not great, but it's good enough for a solid real estate investment trust like this one.

And data confirms this resiliency. Realty Trust's occupancy rate stands at a healthy 98.2%, and even during the depths of the coronavirus threat in 2020, that figure held up at a healthy 97.9%. That may have something to do with the fact that 90% of this REIT's rents come from companies that are "resilient to economic downturns and/or isolated from e-commerce pressures."

Underscoring this resiliency is the fact that not only has this REIT continued to dish out its monthly (yes, monthly) dividends, but it has upped its payouts every quarter for the past 27 years. New investors will be stepping in while the dividend yield is just above 5.1%.

Buying sooner would be better than buying later

This stock doesn't necessarily belong in everyone's portfolio:.While it's a fantastic dividend holding, it's far from being a growth stock. If growth is what you're interested in adding to your portfolio right now, look elsewhere.

If you're looking for a solid dividend payer for 2025, though, Realty Income is a good one that is made even better by the fact that the stock's still trading 24% below its pre-pandemic peak. Some investors may be waiting for the proverbial other shoe to drop, but it's increasingly looking like that just isn't going to happen.

This dynamic lays the groundwork for rekindled longer-term (even if modest) capital gains in addition to its dividend payments.

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