The reason for today's decrease in Realty Income's stock value.
Stocks of Realty Income (decrease of 0.36%) were on a downward trend on Wednesday, prompted by an increase in Treasury yields. This rise in yields suggested that investors anticipated higher interest rates under the Trump administration, or at the very least, sustained elevated rates. This prediction posed two challenges for the real estate investment trust (REIT).
At 1:43 p.m. ET, the stock had fallen by 3.8%, mirroring a broader slide in real estate stocks. The Real Estate Select Sector SPDR Fund (decrease of 0.42%) was also down by 3.4% at the same time, while the S&P 500 was making gains of more than 2%.
Realty Income fails to capitalize on post-election surge
On Wednesday, REITs such as Realty Income faced challenges due to the rise in Treasury yields, hinting at rising interest rates. Bonds frequently compete with REIT stocks like Realty Income, which distribute more than 90% of their earnings as dividends. Higher bond yields could draw dividend investors back to bonds. Over the years, Realty Income has enjoyed popularity as a dividend stock due to its monthly payouts and a current yield of 5.4%.
Another reason the higher yields pose a challenge is that Realty Income relies on borrowing money to acquire new properties. Consequently, a hike in interest rates would escalate its interest expenses.
The Trump presidency's impact on Realty Income
Fortunately for shareholders, Realty Income should be shielded from significant changes during the Trump administration, aside from interest rates. Its business model, which is reinforced by triple-net leases and lease agreements with thousands of standalone retail properties to recession-resistant chains like convenience stores and drugstores, provides it with a degree of protection from broader shifts in the economy.
Taking all this into account, investors may seize the opportunity to buy the stock at a discount, considering its 5.4% dividend yield, which looks appealing based on its historical performance.
In light of the anticipated higher interest rates under the Trump administration, investors might reconsider investing in dividend stocks like Realty Income due to the increased bond yields, potentially drawing dividend investors back to bonds. Furthermore, as Realty Income often relies on borrowing money to acquire new properties, a hike in interest rates could significantly increase its interest expenses.
