After underperforming the market during the first half of 2023 as investors poured into artificial intelligence (AI) stocks, dividend stocks are starting to make a comeback. The S&P 500 Dividend Aristocrats ETF (NOBL), which tracks companies that have raised dividends for 25 consecutive years or more, is still slightly negative year-to-date - but NOBL recently crossed above its 20-day moving average, and is now looking to take out its 50-day moving average, too.
Among dividend investors, REITs have long been a fan favorite for their famously high yields - but given the unfolding commercial real estate crisis and soaring mortgage rates, it hasn't been the strongest year for real estate investors, either.
But in the midst of all this chaos, there's one high-yield REIT with Dividend Aristocrat bona fides that's got everyone talking – Realty Income Corp (O), which just earned a thumbs-up from none other than Jim Cramer, the face of CNBC's "Mad Money.”
Why Does Jim Cramer Like Realty Income?
Realty Income stock has had a challenging year in 2023, with the stock price declining by more than 14% year-to-date - and that's after a recent rebound off the lows. By comparison, the broader S&P 500 Index ($SPX) is up 13% on the year, and even underperforming NOBL is off less than 1%.
With interest rates rising - and more recently, bond yields surging - the underperformance of this high-yield REIT isn't terribly surprising. And it certainly hasn't turned off Jim Cramer, who's still waving the bullish flag.
In a recent Lightning Round, the CNBC analyst said “I still think it's a buy,” and called out the stock's over-6% yield and monthly dividend payments as two strong points in O's favor.
Somewhat predictably, Cramer's bullish call on O sparked a flood of bearish comments against the dividend stock on social media, with commenters playing off the same "inverse Cramer" trend that spawned an entire ETF based on shorting his recommendations.
That said, with the shares already bouncing off their lows - and the latest inflation data supporting a more accommodative rate policy into 2024 - it's worth taking a closer look at this Dividend Aristocrat right now.
The Monthly Dividend Payment Champ
Realty Income has over 13,250 commercial properties under lease across the U.S. and internationally, with 98.8% occupancy and 1,300 clients spread across 85 industries. The company is perhaps best known among investors for paying a monthly dividend, currently in the amount of $0.256. That shakes out to over $3 per share annually, for a yield of 6.1%.
Plus, that's backed by over a quarter-century of consistent dividend growth, establishing O as a legit Dividend Aristocrat.
Notably, REITs like Realty Income Corp are bound by law to dish out at least 90% of their taxable income as dividends. And in the third quarter of 2023, Realty Income reported a net income of $233.5 million, showcasing the company's ability to generate profits despite the challenging market conditions.
Funds from operations (FFO), meanwhile, arrived at $721.4 million, or $0.33 per share - which topped Wall Street's expectations. Revenue for the quarter was also solid, arriving at $1.01 billion.
In terms of future growth, the recently announced Spirit Realty Capital (SRC) acquisition is expected “to create immediate and meaningful earnings accretion,” according to Realty Income CEO and President Sumit Roy.
What are the experts saying? Well, most of them agree with Jim Cramer. Out of 13 analysts, the consensus rating is a “moderate buy,” with 4 screaming "strong buy," 1 going for "moderate buy," and 8 settling on "hold."
The target price among this group averages out to $60.45, indicating expected upside of 16% from current levels.
Is Realty Income a Good Dividend Stock to Buy?
Despite a rocky 2023 performance, there's reason to believe better share price performance is ahead for Realty Income. Thanks to a major acquisition and the potential for more a more favorable interest rate environment in 2024, now could be an opportune time to scoop up this Dividend Aristocrat while it's still trading near 52-week lows.
On the date of publication, Ebube Jones did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
