Why Realty Income's Stock Is Falling Today

Shares of the real estate investment trust (REIT) Realty Income (NYSE: O) slipped about 2.8% as of 11:44 a.m. ET after the company reported its fourth-quarter earnings results.

Earnings in line, but guidance disappoints

Realty Income reported adjusted funds from operations (AFFO) of $1.05, in line with consensus Wall Street analyst estimates on FactSet. REITs are a bit different from most companies because they buy and invest in real estate and must pay out at least 90% of their taxable income in dividends to obtain REIT status, which comes with certain tax advantages. AFFO measures cash generated by a business and is a key metric followed by REIT investors. Revenue at Realty Income of $1.34 billion beat consensus estimates.

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However, management guided for AFFO to come in between $4.22 and $4.28 in 2025, falling short of the $4.30 average estimate by Wall Street analysts. During the quarter, Realty increased its quarterly dividend for the 109th straight time. Monthly dividends will increase 2.5% to $3.126. Realty's dividend yield is now at a whopping 5.78%.

Despite the miss, thesis remains intact

Despite the miss on guidance, I still like Realty Income's strategy of investing in real estate leased to clients mainly in non-discretionary, low-price, service-oriented, and non-retail businesses like Home Depot, BJ's, and FedEx, just to name a few. The company is also seeing opportunities in the growing data center and gaming markets. While management executes its strategy, investors can sit back and enjoy a strong and growing dividend.

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