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

The end of the year is a time for reflection and an opportunity to look ahead. It is natural for investors to be already thinking about the best stocks to buy for the coming year. Ideally, investors should be trying to identify stocks that will make winning investments over the long term.

But when a stock is purchased can impact returns, so considering the here and now also makes sense. One factor some investors may consider is how resilient an investment is to different economic conditions. Finding a stock that can weather the storm of a recession could be appealing for those who worry there could be a downturn in the coming year.

Where to invest $1,000 right now? Our analyst team just revealed what they believe are the 10 best stocks to buy right now. See the 10 stocks »

Let's take a look at a company that has positioned itself well for any potential macroeconomic outcome and see if now is the time to buy.

A compelling dividend investment

Realty Income (NYSE: O) pays its dividend every month. While this is not all that unique, it is something the company takes very seriously. It has raised its dividend every year for the last 30 years. Paying this consistently growing dividend is important enough that Realty Income calls itself "The Monthly Dividend Company."

Putting aside the company's prioritization of its dividend, Realty Income also has to pay at least 90% of its earnings out as a dividend because it is what's called a real estate investment trust (REIT). This classification further solidifies the reliability of the dividend payment to shareholders. The stock currently sports a dividend yield of 5.9%, easily outpacing the S&P 500's yield of 1.3%

Diversification is a strength

Realty Income's business is owning real estate and leasing it out to clients doing business in 90 separate industries. Most of these lease agreements are triple-net leases, meaning it is the clients -- not Realty Income -- that assume the responsibility for things like taxes, insurance, and maintenance.

Realty Income's strategy of leasing to so many distinct industries provides diversification for its real estate portfolio. If one sector of the economy has a downturn, it won't have an outsized impact on the REIT because that sector would only be a small percentage of its portfolio.

The company apportions 73% of its portfolio to businesses such as non-discretionary, low-price retailers, and service-oriented retail. Think grocery, convenience stores, drug stores, etc. In short, even when things get tough economically, Realty Income's clients should be resilient. In fact, the company classifies approximately 90% of its real estate portfolio as "resilient to economic downturns and/or isolated from economic pressures."

A tough few years for REITs

Since its pre-pandemic high, Realty Income's stock is down nearly 34%. This tracks the broader REIT space, which has yet to regain what it lost during the pandemic. The S&P US REIT Index is down 17% from early 2020.

Despite the stock's performance, the Realty Income has done quite well. Over the last five years, it has grown revenue by 237%. Funds from operations (FFO), which is a proxy for earnings when talking about REITs, have increased by 210% over that same time period. Seeing these two metrics triple in five years, one might be surprised that the stock is down nearly 30%.

Is Realty Income a buy, sell, or hold in 2025?

There's been nothing in Realty Income's business performance that would lead investors to believe the company is in any kind of trouble. Even with the slower performance in the last few years, Realty Income has posted a compound annual total return of 14.1% since its debut on the public markets in 1994.

Most stocks go through tougher times and double-digit drawdowns. The challenge for investors is holding through them to see strong returns over the long term. The prolonged slump for the REIT sector generally seems to have presented a compelling buying opportunity, especially for the strongest companies in the REIT space. Realty Income certainly fits that description, making it a buy in 2025 for patient investors.

Don’t miss this second chance at a potentially lucrative opportunity

Ever feel like you missed the boat in buying the most successful stocks? Then you’ll want to hear this.

On rare occasions, our expert team of analysts issues a “Double Down” stock recommendation for companies that they think are about to pop. If you’re worried you’ve already missed your chance to invest, now is the best time to buy before it’s too late. And the numbers speak for themselves:

• Nvidia: if you invested $1,000 when we doubled down in 2009, you’d have $363,593!*
• Apple: if you invested $1,000 when we doubled down in 2008, you’d have $48,899!*
• Netflix: if you invested $1,000 when we doubled down in 2004, you’d have $502,684!*

Right now, we’re issuing “Double Down” alerts for three incredible companies, and there may not be another chance like this anytime soon.

See 3 “Double Down” stocks »

*Stock Advisor returns as of December 23, 2024

Jeff Santoro 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.