$O (-0.13%) A check on my largest portfolio value
Time for a portfolio reality check. I'm launching a new series in which I'm taking another look at each of my share positions. Not as a theoretical analysis, but with a concrete view from my own portfolio: How is the share doing? What is my strategy? Buy, hold or get out? Today I'm starting with the biggest chunk: Realty Income.
Key data:
- 194.67 shares in the portfolio
- Purchase price: 51.58 euros
- Current price: 48.91 euros
- Securities account value: 9,520.82 euros
- Book loss: -519.40 euros / -5.17 %
This is not a disaster, especially with a dividend yield of currently over 5.5%. Nevertheless: time to re-evaluate the share - including the environment, opportunities and risks.
Company profile: Tenants pay, dividends flow
Realty Income is a US REIT with a simple but ingenious business model: buy properties, rent them out to stable tenants on a long-term basis and pay a monthly dividend. The whole thing is based on so-called "triple net leases". This means that the tenants bear the operating, maintenance and tax costs. Realty Income collects the rent.
Tenants include corporations such as Walgreens, FedEx, 7-Eleven, Dollar General and Home Depot. The focus is on non-cyclical sectors. The portfolio comprises over 15,600 properties - primarily in the USA, but also in Europe.
What makes Realty Income special is that the company has been paying a monthly dividend for decades. In total, more than 130 dividend increases have been carried out since the IPO in 1994. There were four increases in 2025 alone. The current annualized distribution is USD 3.23.
Dividend machine with a safety net
The payout ratio is around 75% of AFFO (Adjusted Funds From Operations) - rather conservative for a REIT. At the same time, the occupancy rate is extremely high at 98.7%. Re-lettings are currently generating even higher rents than before (rent recapture rate > 107 %).
What I personally like: Realty Income is sticking to its financial discipline despite acquisitions. The A rating shows that the balance sheet is clean. No REIT is debt-free, but the structure is right here. Properties are not bought blindly, but cash flows are generated and invested sensibly.
Interest rate turnaround, inflation, external pressure
So why has the share price fallen? Quite simply, the interest rate environment has changed dramatically. Real estate values are sensitive to interest rates. Higher interest rates mean: higher refinancing costs, lower valuations, less growth momentum.
In 2022/23, the Fed raised interest rates aggressively. The first rate cut only came at the end of 2024. As long as the "high interest rate mode" continues, REITs will be less in demand - despite good fundamental data.
Realty Income has reacted to this: Investments have been reduced (only around USD 3 billion in 2024 without the Spirit deal), but internal management is being made more efficient. The company is also planning new sources of financing outside the stock market - e.g. private equity funds.
Valuation & DCF model: undervalued at a discount?
I have calculated a conservative DCF model:
- AFFO growth: 3%
- Discount rate: 8%
- Terminal growth: 2%
Result: Fair value between USD 60 and 70. The share is currently trading at around USD 57 - i.e. slightly undervalued.
Historically, the valuation (P/AFFO ~13.5) is also below the long-term average (~17). At >5.5%, the dividend yield is also well above the norm.
Analyst opinions: Cautious optimism
Of 13 analysts, 9 say: Hold. 4 recommend buying. The average target price is USD 61 - around 7 % above the current price. No hype, but solid confidence.
Opportunities & risks at a glance
Opportunities:
- Extremely stable cash flows thanks to long-term rental agreements
- Expansion into new asset classes (casinos, data centers)
- Entry into Europe creates new growth area
- High credit rating enables favorable financing
Risks:
- Interest rate environment could be a burden for longer
- Capital increases are becoming more difficult
- Retail sector under pressure from e-commerce
- Economic downturn could impact tenants
My conclusion: solid holding position with cash flow advantage
Realty Income is my largest position for a reason. I don't see a rally here, but a reliable cash flow supplier for many years to come.
Buying more? No, the weighting in the portfolio is already high. Sell? Also no. The dividend is too stable and the company too robust for that.
I hold. And I collect my dividend month after month.
As always, this is not investment advice. I am sharing my own opinion and experience here. Decide for yourself what suits your portfolio.