I’m Buying Realty Income Hand Over Fist! Have you ever had that experience where something you really wanted or like goes on sale? Sometimes it reminds me of my grandparents from the depression era and what they must of thought about the modern world.
You see, they grew up with almost nothing. Some basic food, plain clothes and not much else.
The modern world in the later part of their life was full of second hand stuff that was both amazing and had become cheap. Clothes, movies, furniture, cars, gadgets galore. People would throw away stuff that grandpa would fish out of the trash and treasure or sell. He must of been amazed by this. I guess that’s the power of capitalism. Over the course of their lives they started with nothing and ended in a world overwhelmingly abundant with low cost items that they liked.
Buying Realty Income
Ok, back to the topic of this article: Realty Income. Right now I feel a bit like my grandparents. Partial ownership of real estate assets and access to a fat dividend yield is on sale. And here is something that makes no sense. O stock has gone down, yet they once again shared a strong financial performance in Q2 with almost $200 million in net income and significant investments.
$50 & 6% yield
O has not been at these stock price levels since the pandemic drop when everyone was scared to death! So, why now has the stock dropped as the long term outlook continues to shine bright? It makes no sense, but Mr. Market rarely makes sense in the short term. In fact, Mr. Market is either scared to death or high as a kite.
People are out more and more and the economy continues to improve and grow. Sure, there will be challenges, maybe even a recession. But Realty Income has been through it all before and they have just continued to make money for their shareholders.
I am all in
Well, I hear all kinds of reasons why the stock price has been punished. I hear that REITs that diversify too much are punished. They are out of their comfort zone. Interest rates are too high. and more…
All these reasons can also be viewed as strengths for Realty Income. Diversification makes an entity stronger as long as they are able to continue to manage their core business. Getting out of our comfort zones can lead to growth. And most of Realty Incomes mortgage debt is locked in at low rates.
Long Term Winner
Realty Income will prove to be a long term winner that delivers value to shareholders and pays a healthy dividend all along the way. They own an asset that can be reimagined and reconfigured to adapt to changing market conditions. No more prime real estate is being made in popular and vibrant areas of the US.
Cost of Capital
I guess they are being punished because the future cost of capital will be higher, like around 4.5% or more. But rents will also rise and the company can probably find efficiencies in property management with AI and other technological tools.
We may very well look back at this time as an awesome opportunity to own a solid investment vehicle at a below market price. Warren Buffett said when it is raining dollars he likes to run outside with a bucket. I am filling my bucket with more realty income.