top of page

Realty Income Stock Analysis

Company: Realty Income Corporation

Ticker: O Previous Close: $61.74 (2/9) Industry: REIT (Retail)

Short-term: Buy

Middle-term: Buy

Long-term: Buy


Economic Moat

Realty Income (O):

Free cashflow: $1,122,126,000

Revenue ( = Sales): $1,551,567,000

Free Cashflow/Revenue (>5%) = 72.32%➤This is a great percentage which also means that the company can ensure a more secure dividend. It should be noted that that such high free cashflow ratios are often the case with many REIT‘s; however, Realty Income’s free cashflows are (and have been in the past) really strong.

Net Margins (> 15%)

Realty Income (O):

Net Income (Consolidated) : $436,482,000

Revenue : $1,551,567,000

Net Margin = Net Income/Revenue = 28.13% ➤ This is also a very good percentage and can even be seen as an added bonus with Realty Income as this percentage becomes even better when using FFO. Funds From Operations (FFO) are typically used because they are a better measurement of net income for a REIT due to the way they must report costs. The effect of this will primarily be seen in the next point.

ROE (> 15%)

Realty Income (O):

Return on Equity (ROE)= Net Income/Shareholder's Equity

ROE = 4.12%➤ This is not a very high percentage, but it can be attributed to the way that the firm has to record earnings as a REIT. Additionally, this percentage is around the industry average of between 3.9% and 5%. When using FFO, this percentage then rises to 12.76% which is even better given the current situation with COVID-19 i.e. (less rent is paid overall and net margins are decreased companywide).

ROA (> 6%)

Realty Income (O):

Return on Assets (ROA)= Net Income/Assets

ROA = 2.71% ➤ This percentage is not very good, but again, this metric must be considered according to the context of the way Realty Income is structured as a firm and how they have to record earnings as a REIT. When using FFO, this percentage increases once more to 6.72% which is actually fairly good.

Economic Moat Conclusion

Realty Income (O): Altogether, this company has very good free cashflows and net margins which help to ensure an excellent, secure dividend and a strong position which are important factors when choosing a REIT stock for one's portfolio. This firm has quite a low ROE and a ROA, but this is mainly due to the way they have to report earnings and are structured as a REIT. When using FFO as the metric to gauge company value instead of earnings, these variables are actually good. Having analyzed each of these factors and considered them for their worth, it can be concluded that Realty Income indeed has an economic moat which means they are currently well protected against setbacks and competition.


Realty Income:

To calculate this metric the firm's current free cashflow of $1,122,126,000 will be used. In the past, Realty Income's cashflows had a good, steady upward trend. This factor makes it easier to predict growth rates. Based on those past figures and properly weighting the most recent ones, the firm can be assumed to have an average yearly growth of 9% in the first five years and 7% after that. Because of their strong economic moat, it can also be assumed that the company has a discount rate of 8%. Combining each of these variables together, a per-share price of $91.67 is the result.

Current Price: $61.74

Estimated Fair Value Price: $91.67 ➤ 33.26% Margin of Safety. This percentage and overall margin of safety is great for a company with such strong cashflows.

20 Point Analysis

1. CEO

Realty Income: Sumit Roy has been CEO since 2018 and he has been with Realty Income since 2013. This isn’t as long as other CEOs in the industry or even in general, but in his defense, the company has done well during his tenure at the helm of the firm. Last year it was reported that he approximately earned $7.5 million dollars which isn’t overly high and still within acceptable levels in my opinion. Of course, this is rather subjective and up to debate.

Realty Income: They are not quite as innovative as other firms but that is not their goal. Realty Income primarily focuses on growing steadily over time whilst providing their shareholders with consistent dividends. Per this, the company continues to excel and has excelled in the past, in focusing on this goal. This efficiency and excellence to that end results in Realty Income being highly regarded as a superb, monthly dividend-paying company.

Realty Income: Their business model and the specific industry that they are in certainly allows them to grow as long as they stay ahead of the competition. They mainly invest in retail properties which will most likely remain needed in the coming decades and well into the future. Small and big businesses alike will continue to need space, which will further push growth in the positive, upward direction. A part of Realty Income's free cashflows are distributed each month as previously reported, but that doesn’t mean there isn’t any cash left afterward. The remaining cash is used by the firm for continuing their growth so that they can ensure the consistency of their dividend rates and payouts.

4. How does the company grow?

Realty Income: There are two main ways that Realty Income grows. Firstly, they grow by increasing the size of their real estate portfolio by investing in new properties using the aforementioned cashflows (and sometimes capital increases). Secondly, they grow their revenue by regularly increasing their rents each year further stimulating the company's growth and bolstering revenue.

5. Is the company a market leader?

Realty Income: Realty Income is definitely ranked amongst the biggest players in their market. Even though this is the case and one might expect them to become stagnant, they are in a very competitive space that constantly requires them to stay on top of their game. As analyzed above, they do have an economic moat that offers protection against said competition while continuing to focus on growth, company goals, and investor satisfaction.

6. Is their market leadership safe?

Realty Income: Again, this company has a good economic moat due to its strong cashflows and earnings. This helps ensure protection against setbacks and competition. It should further be noted that this protection could fade over time and that Realty Income needs more than just strong financials to sustain themselves over the long-term. Luckily, most of their contracts are long-term, net lease agreements which strengthen their positions through lock-in and further cements their leadership.

Realty Income: They are only slightly influenced by foreign exchange or commodities risk because they own a small portion of properties outside the US. This effect is negligible though.

Realty Income: They have net margins of 28.13%. This is a great percentage, especially when comparing it to the standard benchmark of 15%. Using Funds From Operations (FFO), which gives a better estimate, this percentage further increases and becomes even better.

Realty Income: Capital is certainly needed to fund new investments and continue to grow the firm's investment portfolio. On a great note, it seems that the company has sufficient cashflows to help in funding this.

Realty Income: It is difficult to talk about loyal customers given the nature of the company's business, but something similar can be observed in this case. To that end, two factors contribute to client relationships. Firstly, they work utilizing long term lease contracts with a duration of 15-20 years on average, which ensures fairly certain cashflows and consistent earnings. Secondly, people who rent space from Realty Income won’t have much motivation to move unless there is something really wrong with the location further contributing to their loyal client relationships. It should lastly be noted that the switching of locations costs large sums of money for any business, which in turn creates lock-in that is highly beneficial to Realty Income.

Realty Income: They have very high free cashflows relative to revenue, even when comparing this metric to the industry standard. In the past, this was also the case so overall they are doing well in this regard.

Realty Income: The company has seen an increase in their value of 122% over the past 10 years. This is great and also does not even take into consideration the monthly dividend which has also been increasing at least yearly. This would make the return significantly better were this to be factored into the variable.

Realty Income: They have a quick ratio of 5.17 and a current ratio of 5.17. This means that they can certainly pay back their current short-term debt and this is very good. Along with that, the ability to readily pay back short-term debt leaves some room for the firm to acquire more debt which could be beneficial, especially at these low-interest rates seen across the nation currently.

Realty Income: They use their cashflow and debt in order to finance their operations.

Realty Income: Long term debt: $8.56B Shareholders Equity: $10.47B ➤Debt to Equity Ratio: 0.82 ➤This is a good ratio similar to their quick and current ratios. Again they seem to be in control of their debt levels pretty well, even to the point that they can afford more debt which would serve as highly beneficial for growth and success well into the future.

Realty Income: 4/9 ➤ This metric is a bit too low and actually worse than in past years where a median of 5 could be observed.

Realty Income: 50.94 ➤ This price-to-earnings ratio is on the high end but primarily due to the way they have to report earnings and are structured as a firm. As stated in the above analyses, funds from operations (FFO) provide a better measurement than earnings when evaluating these types of companies. If we use FFO instead of earnings we get a ratio of 18.31 which is great considering their growth level and the dividends that they payout monthly.

Realty Income: 2.05 ➤ This is an ok ratio and sits within the range of price-to-book ratio levels.

Realty Income: 20.04 ➤ This ratio is very high which actually is not very good. In analyzing this metric, it becomes apparent that there is no immediate alternative for Earnings Before Interest Taxes Depreciation & amortization (EBITDA) as with the metrics for earnings so, to this end, a value point cannot be given.

Realty Income: 5.17% ➤ This percentage is pretty low which actually positively affects the valuation.

Total Score

Realty Income: 15/20 ➤ This is a fairly good total score and it seems as though the firm is operating efficiently, effectively, and maintaining a high degree of success across the board. Realty Income's main strengths are its strong track record, consistent growth, and monthly dividend which are all factors an investor should consider and base portions of their analysis off of. To end, this company is a far less risky investment than other stocks or assets, in my opinion, which certainly makes them an exciting and possibly beneficial addition to long-term portfolios.

All the information provided is personal opinion and not directly applicable financial advice. I have no ties to the above company and am not being compensated on their behalf for the writing of this analysis. You should make your own decisions based upon evidence and what you believe is best for you and your financial well-being i.e., conducting your own due diligence.

Recent Posts

See All


bottom of page