Realty Income (O): A Compelling Income Investment in a Rising Yield Environment

In an era where traditional fixed-income assets struggle to keep pace with inflation and rising interest rates, real estate investment trusts (REITs) like Realty Income Corporation (O) offer a compelling alternative for income-focused investors. With its disciplined approach to capital allocation, consistent dividend growth, and strategic geographic diversification, Realty Income has positioned itself as a standout player in the commercial real estate sector. This analysis evaluates the company's valuation, dividend sustainability, and strategic expansion efforts to determine its appeal in today's market.

Valuation: A Reasonable Premium for Steady Cash Flows

Realty Income's stock valuation appears attractive when measured against its adjusted funds from operations (AFFO) per share, a key metric for REITs. As of November 28, 2025, the stock closed at $57.61, yielding a price-to-AFFO (P/AFFO) ratio of approximately 13.5x, based on the company's updated 2025 AFFO guidance of $4.25–$4.27 per share. This ratio is in line with historical averages for high-quality REITs and suggests a reasonable premium for a company with a 111-quarter streak of consecutive dividend increases.

The company's financial performance in 2025 further supports its valuation. For the third quarter, AFFO per share reached $1.08, exceeding estimates and reflecting year-over-year growth. Realty Income has also raised its 2025 investment guidance to $5.5 billion, signaling confidence in its ability to generate high-yield assets. With a net debt to annualized pro forma EBITDA ratio of 5.4x as of September 30, 2025, the company maintains disciplined leverage while retaining $3.5 billion in liquidity. This balance sheet strength provides flexibility to fund growth without overextending, a critical advantage in a rising rate environment.

Dividend Sustainability: A Track Record of Resilience

Realty Income's dividend sustainability remains a cornerstone of its appeal. The company is expected to pay $3.24 per share in 2025, translating to a monthly payout of $0.27 per share. While its dividend payout ratio based on net income is 298.2%, this metric is misleading for REITs, which prioritize AFFO as the primary earnings measure. Using the midpoint of the 2025 AFFO guidance of $4.26 per share, the payout ratio based on AFFO is approximately 76% ($3.24 ÷ $4.26), a level consistent with industry norms and indicative of a sustainable distribution model.

The company's ability to fund dividends is reinforced by its operational performance. In Q3 2025, Realty Income invested $1.4 billion in real estate at an initial weighted average cash yield of 7.7%, with 76% of Q2 2025 investments originating from Europe. These high-yield acquisitions, combined with a 98.7% portfolio occupancy rate and a 103.5% rent recapture rate on re-leased properties, ensure a steady stream of cash flows to support dividends. The next payout, scheduled for January 15, 2026, underscores the company's commitment to rewarding shareholders, even as interest rates rise.

Strategic Expansion: Global Diversification and Operational Discipline

Realty Income's strategic expansion into international markets and its focus on high-yield assets highlight its adaptability in a shifting economic landscape. During Q3 2025, the company increased its 2025 investment volume guidance to $5.5 billion, up from $5.0 billion, reflecting strong execution and demand for its services. The 7.7% average cash yield on Q3 investments also outperforms many traditional fixed-income alternatives, making Realty Income an attractive option for investors seeking inflation protection.

Geographic diversification further mitigates risk. While 76% of Q2 2025 investments came from Europe, the company's global portfolio spans 113 U.S. cities and 22 international locations, reducing exposure to regional economic downturns. This strategy aligns with broader trends, as global real estate markets offer varying cycles and growth opportunities. Additionally, Realty Income's $3.5 billion liquidity position provides ample capital to pursue accretive acquisitions without compromising its leverage ratios.

Conclusion: A Balanced Approach to Income and Growth

Realty Income (O) stands out as a compelling income investment in a rising yield environment due to its disciplined valuation, sustainable dividend model, and strategic global expansion. While the company's payout ratio based on net income appears high, its AFFO-centric approach ensures dividends remain well-supported by operational cash flows. The recent guidance updates and strong investment performance further reinforce its ability to generate returns in both equity and income. For investors seeking a REIT with a proven track record of resilience and growth, Realty Income offers a balanced proposition in an increasingly complex market.