Realty Income is probably the most well-known monthly distributor in the US. In Sweden, with roughly 10,000 owners at Avanza, this is significantly more popular than other American giants such as Johnson & Johnson and 3M.

First and foremost, that Trump won the election put lot of pressure on most REITs in the US. However, Realty Income was one of those that fell the most during the week. The fear of no interest rate cuts hit the real estate sector hard, but instead benefited tech, oil companies and financial companies.

The Fed has already cut interest rates twice this year. First it was lowered on 18 September and now at the latest on 7 November (the same day the Riksbank lowered it). Companies like Realty Income should benefit when the interest rate has now gone from a higher level to a lower level.

But what knocked the stock instead was their latest report summarizing the third quarter. A negative point was that Funds From Operations (FFO) came in at $0.99/share versus the expected $1.06.

As a dividend investor, however, you should instead look at AFFO , where we also take into account extra costs that arise for certain REITs (for example, repainting a roof) and add sources of income such as rent increases. This is the best key figure to look at to determine how “healthy” the dividend actually is.

If we take Realty’s current monthly dividend of $0.2635 and multiply it by three, we get the future quarterly dividend of $0.7905 if this is not raised or lowered. Their AFFO/share last quarter was $1.05. This gives a payout ratio of quite precisely 75%

For the industry as a whole, a dividend ratio of between 70-80% is recommended. Right now, this is not a problem for Realty.

Also, so far this year, Realty Income has raised its dividend 4 times, which is unusual as the last increase tends to appear in December. However, I find it hard to believe that another increase will appear this year.

What the market also reacted to is that the vacancy seems to be increasing, i.e. how much of the company’s total property portfolio is not rented out and thus stands empty. Today, 98.7% of its total portfolio is rented out compared to 98.8% in June 2024. 196 properties are currently available for rent or sale.

Despite that, 98.7% is insanely good and better than the 98.6% we saw in the full year 2023. If we look at how the company fared during the financial crisis, they had an occupancy rate of at least 96.6%. Then the blood flowed in the street for real estate companies in the United States. Here it is also important to press the average for REITs which is at a low 94.4%

Another factor is how well they were able to raise rents in the climate we are in now. These have been raised in the last 3 quarters, but not exactly as much as the previous quarter. That the stock should fall this much considering that feels strange. It must of course be said that we may not have seen everything regarding the increasing vacancy, but Just like many times before, I take advantage of the market’s anxiety and try to buy more.