Is it wise to hold real estate income stocks (O) right now?

Income from real estate O is well positioned to benefit from its portfolio of core industries that sell essential goods and services and are less susceptible to economic uncertainty. Additionally, growth acquisitions and a solid balance sheet bode well for the company.

This retail real estate investment trust (REIT), with properties located in all U.S. states, Puerto Rico, the United Kingdom and Spain, derives the majority of its annual contractual retail rental income from non-discretionary and/or low-cost service tenants. pricing component for their business. These companies provide stable revenue generation for Realty Income because they are less susceptible to economic downturns and competition from online retail.

O also has a diversified tenant base operating in 72 different industries. This allows you to reduce the risk associated with a specific industry, region or type of asset.

Realty Income focuses on external growth through various incremental acquisitions at decent investment spreads. During the six months ended June 30, 2022, it invested $3.23 billion in 423 properties and properties under development or development, including $1.47 billion in Europe. Moreover, it raised its full-year 2022 acquisition forecast to over $6 billion from previous expectations of over $5 billion. Acquisitions increase the company’s scale, providing a competitive advantage to the net leasing industry.

Additionally, a strong balance sheet position with high financial flexibility and a well-structured debt maturity schedule supports Realty Income’s expansion efforts. It ended the second quarter of 2022 with nearly $3.3 billion in liquidity.

Moreover, solid dividend payments are arguably the biggest incentive for REIT shareholders, and Realty Income maintains its commitment to this issue. In June of this year, The Monthly Dividend Company increased the monthly cash dividend on its common stock from 24.70 cents to 24.75 cents, representing the 116th dividend increase since it listed on the New York Stock Exchange in 1994. Given solid financial position and lower debt-to-equity ratio compared to the industry, the latest dividend rate is likely to remain stable.

Over the past six months, shares of Realty Income have risen 7.4%, versus an industry decline of 7.3%.

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However, in recent years, consumer adoption of e-commerce and their preference for online shopping has reduced demand for physical stores and, in turn, retail real estate space. That prompted retailers to close stores, deepening Realty Income’s concerns. To further aggravate the situation, social distancing norms have forced the reluctant who once favored in-store shopping to opt for online retailing to avoid physical contact.

In addition, a significant portion of O’s tenant list consists of properties owned by a single client, which exposes it to tenant default risk. This may limit the company’s income from renting this property.

Analysts appear bearish on the Zacks #3 (Hold) stock. The Zacks Consensus Estimate for the company’s 2022 funds from operations (FFO) per share has revised slightly southward to $3.91 over the past month.

Stocks to consider

Some REIT companies are better valued Regency centers REG, Trusted by the Kite Realty group KRG i EPR properties EPRs each carry a Zacks Rank #2 (Buy). You can see see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The Zacks Consensus Estimate for Regency Centers’ current-year FFO per share has moved north slightly to $3.93.

The Zacks Consensus Estimate for Kite Realty Group Trust’s current-year FFO per share has increased 1.1% to $1.82 over the past month.

The Zacks Consensus Estimate for EPR Properties’ 2022 FFO per share has increased slightly over the past two months to $4.77.

Note: Everything related to earnings reported in this report represents funds from operations (FFO), a commonly used metric for measuring REIT performance.

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