Could real estate income reach $100 in 2022?

It is one of the most popular real estate investment trusts (REITs) in the market today and pays a high yielding monthly dividend. It also operates in a sector poised for a serious rebound in the coming months. So maybe retail oriented Real estate income (NYSE:O)currently priced at just over $66 per share, may reach $100 before the end of this year.

That could be a tall order, though. In its nearly 30-year history as a publicly traded entity, the REIT’s all-time high stock price was just under $80 per share. Here’s my take on possibly breaking that much-vaunted $100 level by next New Year’s Eve.

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A true commercial power

There’s no doubt that Realty Income has the size, reach, and notoriety to jump into the triple-digit club. That’s huge, even by the standards of the well-capitalized REIT segment, with a dizzying portfolio of 11,136 properties in its portfolio as of December 31 last year and a market capitalization of $39 billion.

It is also a model retail REIT in the way it manages to grow its business. Regular rent increases are built into her rental agreements, and she has the financial muscle to not only maintain that portfolio, but to constantly expand it. Last year alone, it invested more than $6.4 billion in 911 properties, many of which were under development or expanding.

Realty Income also has the dosh for doing a bit of shopping in addition to building portfolios. Last year, for example, it completed the acquisition of another REIT, Vereit, in an all-stock deal.

The problem with being such a big player, however, is that it becomes exponentially harder to achieve significant growth (one of the reasons big companies like to make acquisitions; they add size quickly).

For 2021, Realty Income was, as always, profitable and growing. The full year saw the REIT increase revenue by 26% compared to the 2020 tally. Meanwhile, normalized funds from operations (FFO, widely considered the most important profitability metric for REITS) lagged only slightly, at a clip of 23%.

We must bear in mind that the latter part of 2021 has seen the world slowly emerge from what we hope is the decline of the coronavirus pandemic. Year-over-year comparisons were expected to be favourable. Still, the company has done a good job of growing its business over the years, albeit not usually at such high rates.

New month, new payment

For REIT investors, stock fundamentals are only part of the equation. Since REITs, with their relatively high dividend yields, are popular with income investors, their payouts really matter. Realty Income is way ahead of the pack here, as it distributes its distribution monthly as opposed to the much more standard quarterly of so many other dividend-paying stocks.

Since it goes by the name of “The Monthly Dividend Company”, this frequency – and the payment itself – are fundamental. Realty Income is a dividend aristocrat and more, as it has declared dividend increases multiple times a year since 1998 (a company is only required to do so once a year to achieve aristocrat status).

While being a monthly-paying aristocrat is a very attractive quality in a dividend-paying stock, that in itself doesn’t make Realty Income payout superior, however.

The company’s all-important dividend yield is 4.3% at the moment, which is good relative to non-REIT income stocks, but more or less in the middle of the REIT spectrum. He beats Federal Real Estate Investment Trustis 3.6% and Digital Real Estate Trustis 3.4%, for example. But it is eclipsed by the nearly 5% of Domestic commercial properties and WP Careyis muscular 5.4%.

Crossing the $100 barrier

So, given all of this, does Realty Income have a good chance of hitting the $100 mark this year?

For all its benefits, power and dividend appeal, I would say no. I think the recovery in the retail sector due to the apparent waning of the coronavirus pandemic is already priced into the stock price. I don’t think that in the next three quarters Realty Income’s business will grow dramatically and unexpectedly high enough to drive its value more than 50%.

Don’t get me wrong, I really like Realty Income. I would be very happy for the company and its many shareholders if it reached unprecedented price levels. But it’s a massive operator in a retail sector that, aside from the occasional frightening global pandemic, rarely sees monster growth spurts/recovery.

So, if I were to look into my crystal ball, I would probably witness the stock price rise…but not to heights as high as $100. At least not by the end of this year.

This article represents the opinion of the author, who may disagree with the “official” recommendation position of a high-end advice service Motley Fool. We are heterogeneous! Challenging an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and wealthier.

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