Dividendology 对 $O 的判断变化

Probably the most popular monthly dividend paying stock of all time is Realy Income Stock Ticker O. And even after the recent runup in its share price, the stock is still yielding close to around 5.2%.

In fact, if we look at the performance year to date relative to the S&P 500, it's actually outperformed in 2026 and it's even outperformed its benchmark, the Vanguard Real Estate Index Fund.

So 2026 overall has been pretty solid for realy income, but everybody already knows this. The past 5 years paint a much different picture. The rate has fallen by about 12%.

Now obviously if we look at it on a total return basis, which essentially means we're including dividends, the total returns are positive, but that's still some serious underperformance relative to the S&P 500, which obviously has been pushed higher and higher by the tech and AI rally.

But with all that being said, does that mean that even after the recent runup in 2026 for realy income? Is it still an interesting opportunity at current prices?

Well, the reality is to answer that question, there's a couple of different things we have to take into consideration. And so in this video, we're going to be looking at the company's fundamentals, taking a deep dive into its earnings presentation, as well as the recent strategic partnership that they announced, which a lot of people seem to be missing, but it changes a lot when it comes to the underlying fundamentals for this rate.

Now, as I pointed out, the last 5 years have not been good, at least from a share price appreciation standpoint. We're down by about 12%. 5 years ago, this REIT was trading above $70 a share.

So naturally again anytime you see a decline in the share price you need to ask what is the source of that decline meaning has simply the valuation multiple pulled back for this REIT which it's currently sitting at a 14.43 43 price to FFO multiple or is something fundamentally changed?

Has adjusted funds from operation continued to go lower for this REIT? And so if we scroll down, we can see one of the rates here obviously is realy income. The question we need to ask is what's been going on with adjusted funds from operation over the last few years.

Well, to start when we look at the last 7 years, adjusted funds from operation has grown at a compounded annual growth rate of about 4.29%.

The past 5 years, which remember they're down about 12% during that time period, but adjusted funds from operation has continued to climb higher. Now, that being said, the growth has slowed down in the last few years. The 3-year AFO per share Kagger is down to about 2.97%.

And if we just look at analyst estimates right now, it's sitting at about 3.44% through the year 2029. So it's still projecting decent growth at this point. Now, here's why this is interesting. If adjusted funds from operation has continued to grow during this downturn and it's projected to continue to grow at a healthy rate, naturally what does that mean? Well, it means if we scroll all the way over, we can see the valuation multiple that it's trading at is significantly lower than its 5-year average. So, trading at a stark discount relative to how the REIT has historically traded.

So, we need to ask a couple of questions. Why has it been trading at this discount? If we look at the valuation multiple really since around 2014, right now it's still trading at one of its lowest valuations since 2014.

At certain points in this REIT's life, in fact, pretty frequently, it was trading about 18 to 20 times price to AFO multiple. So again, the source of this decline is not fundamentals. It's a change in the valuation multiple.

So why are investors valuing this at such a lower valuation multiple? It's not because the dividend isn't safe. The dividend is very well covered by adjusted funds from operations, and it's projected to continue to do that somewhat easily. The payout ratio is sitting at about 75%. Really, what's been going on is behind the scenes.

But the first is from an opportunity cost perspective, cuz right now, realy income is yielding a relatively safe 5.17%. But obviously, there's still risk. Anytime you're buying individual stocks, it's going to be more risky than buying a US Treasury. So, investors have to ask themselves, would they rather take risk to get a 5.1% yield or simply buy a US Treasury yielding around 4.7% when these yields are higher? And they're certainly significantly higher than they were just even a year ago. All of a sudden, it makes rates less attractive purely from an opportunity cost perspective.

So, this high rate environment we've been operating in has not been optimal for realy income.

It's just a simple example. REITs don't have that same business model because again they're required to pay out the vast majority of their earnings in the form of a dividend. So how can they actually grow adjusted funds from operations on a per share basis? Well really there's two options and the first is obvious. They can take on debt and this is something that REITs do actively do. They have a well diversified debt ladder. This is when their debt is coming due. None of it comes due all at once. It's strategic and their debt coverage ratios are healthy as well.

However, again, we have to go back to this yield curve. The cost of debt has become substantially more expensive as a result of rates going higher. So, all of a sudden, taking on debt isn't as attractive for these REITs.

So, naturally, what's their second option? Well, in reality, the second option for these REITs is to issue shares. The data will load in thanks to ticker data. And what we can see is for realy income, yes, they do typically issue shares. That's not uncommon, but this share issuance really ramped up from 2022 to around 2025 to present day.

And the reason is obvious. Think about this. This is exactly when rates started going substantially higher. The cost of debt became far less attractive. So what did they start doing? They started issuing shares.

But here's why this is even starting to become a problem. Because in a perfect world, say in theory that realy income's intrinsic value was exactly $75 a share. If realy income is valued at $75 a share, but they're issuing shares at around $63, that's not a good thing. That becomes even more dilutive to their shareholders.

Now, obviously, at the end of the day, it depends on the return on investment they can get from those share issuances. But they can raise more capital when they're trading at fair value or even above fair value. And right now, I think they're very clearly below fair value as a result of treasury rates.

So neither one of these options is quite as attractive, at least as it used to be 5 to 10 years ago. But this is where their strategic partnership is starting to come into play. Realy Income has essentially transferred approximately $2 billion of retail properties into a joint venture. The joint venture is with Apollo. Now, Realy Income retains 51% ownership and received $1 billion, basically 1 billion in cash from Apollo for the remaining 49%.

So, Realy Income still operates the properties and earns the management fees, but it can now redeploy Apollo's capital into new investments without issuing additional shares.

Apollo is targeting a capped 6.875% 875% return and realy income can buy Apollo out between years 7 and 15 of this joint venture.

So what's the overall goal of this venture? The goal is to lower realy income's cost of capital. Meaning this becomes a more attractive way to raise capital versus issuing shares or taking on debt. All of a sudden there's a third option.

But again, at the end of the day, it only creates value if the company reinvests those proceeds at returns that are well above the cost. So realy income is entering into a new phase. And this is something they highlighted in their recent investor presentation. If you jump down to around the 24th slide, we have realy income 1.0, which they essentially assess as the monthly dividend company up till 2010. Realy income 2.0 is where they really grew quite a bit up to 2025. But the strategic change that's taking place right now is called realy income 3.0.

And basically what you'll see is the focus is yes stable income as it has always been consistent growth but then unlocking the benefits of private capital because here's the reality for realy income. We saw earlier that yes AFO per share growth has slowown down in the last few years. However, if they can strategically lower their cost of capital all of a sudden that can ramp AFO per share growth back up by quite a bit.

Now, on top of this, on another note, they're looking for other growth opportunities. For example, they just took on a 6 billion data center deal. They formed a joint venture with cloud capital and global institutional investor to acquire hyperscale data centers. So, it's still obviously very early, but generally speaking, this should be bullish from a growth perspective.

So, internally with the company, there's obviously a lot going on right now, but even externally with what the treasury market is doing right now, it's really impacting the way realy income is being valued. And we know this because they're still trading at one of their lowest valuation multiples in the last 10 to 15 years.

So what is a fair value for realy income right now? Well, there's obviously a few different ways we could value a REIT, but in the case of realy income, the easiest is certainly a dividend discount model.

We're valuing realy income based on how much they pay out in dividends and how much that dividend will grow in the future. Now remember they pay out dividends on a monthly basis. So the overall timing can make those dividend payments at least on a yearly basis look somewhat odd occasionally speaking.

But if realy income can grow dividends at about 3% moving forward, we can see the fair value to be about $65.30 implying just a little bit of upside at current prices.

So the reality is realy income at least to realize more upside is going to have to grow dividends at faster than 3%. Is that possible? Well, it's certainly possible. Why do we know that's the case? Well, because they're already at their target payout ratio of 75%. Right now, we can see they're projecting AFO per share growth to be around 3.4% through the year 2029. So, if that's something they can achieve and they keep their target payout ratio the same, then hypothetically speaking, dividend growth should be about 3.4%. meaning the fair value is sitting at close to $71 a share implying 11 to 12% upside at current prices.

Now, that being said, something that a lot of investors seem to miss with realy income is you're not just buying it for the upside. You're buying it for the reward you're getting relative to the risk. Obviously, their total returns haven't been optimal over the last couple of years because of the pullback in the valuation multiple. But historically, they've outperformed the S&P 500 while doing so with significantly less risk, at least less volatility. The beta was sitting at 0.5, meaning it's about half as volatile as that of the market, while the returns on average were about 13.6%.

So, it's an incredibly attractive position from a risk-to-reward perspective.

And the reality is that even over the last few years, total operational returns, meaning the dividends you're getting in the AFO per share growth, has continued to be very strong. The growth has slowed down, but obviously that's being addressed by trying to lower their cost of capital and attempting new growthier positions such as US data centers.

So, a lot is changing for realy income. But go ahead and let me know your thoughts in the comments down below if you plan on buying or selling or even having it close up on your watch list.