Realty Income is unsuitable for capital appreciation relative to the market but suitable for reliable monthly income.

And to start, we're going to be talking about O, that's Realty Income Corporation. This is a very popular dividend stock, but it has not been doing well. It's down 12% over the past 5 years and 16% over the past 10 years.

Even with dividends reinvested, it's been trailing the market significantly.

So, why is it so popular? It has to do with the fact that it's a monthly dividend payer. And they continually raise their dividend payment throughout the year with larger increases as well.

And they have been paying and growing this dividend for 30 years.

However, there are a few red flags here. For one, dividend growth has slowed significantly. The 5-year compound annual growth rate of the dividend is 3.49% over the past 3 years, it's slowed down even more to 1.98%.

Now, the potential opportunity you have here is that it's a historically high dividend yield, so you're optimizing your dividend yield on cost. It's in the 90th percentile over the past 5 years, and the current forward-looking dividend yield is 5.86%, so that's well above what T-bills would be right now.

And if you're buying Realty Income, you're buying it as an income investment.

Now, I mentioned red flags, and one of those was the slowing growth at Realty Income. The other is that some people are starting to get worried about a potential dividend cut, and I'll give you my thoughts on that.

Now, I think this comes from people looking at different types of payout ratios. A free cash flow payout ratio is now 138% over the trailing 12 months. However, it was 73% in 2025.

And if you normally look at an earnings payout ratio, so based on GAAP earnings per share, this is the typical payout ratio you see on most websites, Realty Income has always been unsustainable based on that, yet they continued paying a dividend every single year.

And that's partly because both of these really aren't the type of payout ratio you should be looking at for a REIT. For REITs, or real estate investment trusts, you should be looking at funds from operations. That would be FFO.

And when you look at funds from operation, I'm not personally worried about dividend cut at all for Realty Income. They gave guidance for the full year of $4.44 to $4.45. This is for adjusted funds from operation per share.

And if you look at the dividend here, it's $3.25. So, the dividend is very well covered by their annual funds from operation. And REITs typically they're around that 70% FFO payout ratio anyways.

That's pretty standard. I think they're actually required to do some amount. So, I'm not as worried in the cut department, but I am worried about the slowing growth at Realty Income.

And when you look at the past 10 years, the stock hasn't been doing well, even with dividends reinvested. Now, to be fair, if you go back to the recent high, it's doing much better, but still underperforming the broader market.

I'm not sure whether Realty Income can ever get to its historically pretty good total return. Going back to 1994 with those monthly dividends reinvested, it's grown at a 13% compound annual growth rate.

But, a huge chunk of those gains are from your reinvested dividends.

And if you look at the fair value graph for Realty Income, it does look historically cheap right now, especially based on the dividend. The median yield over the trailing 12 months is 5.91%.

We're well above that right now. But, here's where I'm worried about it. If you're investing in the stock, you're investing it because of the dividend. That's where the majority of the returns are going to come from.

If we try and calculate the intrinsic value using the dividend discount model, the stock really doesn't look that cheap right now because the dividend growth is so low.

So, this pre-fills with all of those stock information. And this is the thing, the three-year CAGR is 1.98%. So, if you want to hit a 10% annual return, that would be like your discount rate, you're just not going to get there.

It gives an intrinsic value of $40.39, which implies 27% downside. This would be if you wanted 10% annual returns based on the dividend. Even if it goes back to that 5-year CAGR of higher growth, 3.49%, you're still not getting there. It's slightly overvalued that 10% hurdle.

So, it starts to leave the question of who Realty Income stock is for right now, and is it a good buy? I think if you're someone who's trying to beat the S&P 500, you probably don't want to be buying Realty Income even at its 52-week low.

However, if you're someone that just wants reliable monthly dividend income, this is a pretty good option. So, if you're retired and want a part of your portfolio that's just in something where you're getting a reliable amount every month and it goes up over time, it's worth considering.