Realty Income Corp (NYSE:O) is a real estate investment trust, or REIT. It is one of the leading REITs in the retail sector and is one of the most consistent total-return REITs in the business.
The question is whether retail REITs are the best place to be right now. With the growth of online shopping and the challenges many big box retailers are experiencing, buying a stock in a firm that owns the property and buildings in the sector where a massive long-term disruption is taking place may not be the best choice.
But that isn’t O.
O specializes in stand-alone retail spaces. For example, its biggest tenant is Walgreens Boots Alliance Inc (NYSE:WBA). Its second largest client is FedEx Corporation (NYSE:FDX). Other major tenants include CVS Health Corp (NYSE:CVS), Home Depot Inc (NYSE:HD) and Dollar General Inc (NYSE:DG), to name a few.
O’s biggest competitor is Simon Property Group Inc (NYSE:SPG), which is almost 4x the size of O by market cap.
The biggest difference between the two is that SPG focuses on shopping malls, where O focuses on stand-alone businesses.
That means O is in much better shape with its tenants than SPG is. Realty Income Corp has tenants that are not as challenged by online competition. And, since its tenants don’t rely on other tenants on the property, it’s much clearer the kind of revenue stream they need to make it profitable.
SPG is at the whim of consumers and tenants alike. For example, it’s not unusual for smaller malls to have both a Sears Holding Corp (NASDAQ:SHLD) and a J C Penney Company Inc (NYSE:JCP) anchoring the rest of the mall. If the Sears leaves, you have a problem. If the JC Penney leaves as well, you have a disaster.
This is the biggest challenge today. The mall concept is losing steam. The stores that are locked into leases for space in these malls will either walk away, close up shop or request a rent adjustment given the new circumstances.
Whatever option you choose, it is bad news for SPG.
But O is freed from all that bother. Its tenants are growing, not contracting. They operate their own businesses and their models have been proven from small towns to big cities.
This is the significant difference between it and others in the retail space.
Its dividend is a solid 4.3% and O stock is focused on maintaining it and raising it. The stock has been treading water for the past 12 months, but its numbers continue to impress. Some analysts are concerned that its valuation is too high, but given the fact that it operates one of the best REIT portfolios out there, it should be higher than say, SPG and others.
Now is a great time to pick this REIT up at a good price.
Richard Band’s Profitable Investing advisory service helps retirement savers outperform the market without losing a minute of sleep along the way. His straightforward style and low-risk value approach has won seven Best Financial Advisory awards from the Newsletter and Electronic Publishers Foundation.