Realty Income Corporation: Strengths, Weaknesses, Opportunities, Threats

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A SWOT analysis is a look at a company’s strengths, weaknesses, opportunities, and threats, and is a tremendous way to gain a detailed and thorough perspective on a company and its future. Fresh off a decent third quarter earnings report, I would like to pinpoint on the monthly dividend company, the Realty Income Corporation (NYSE: O).


  • Dividend: Realty Income pays out monthly dividends of $0.15, which annualized puts the dividend as yielding 4.73%, which is well north of any return an investor could find in a CD or a treasury bond
  • Stable Business Model: The company invests in properties, leases them out to customers, and collects the fees monthly; this business model is very predictable and stable as many of these rent agreements are long-term (the average remaining lease length is 11.0 years)
  • High Occupancy Rate: One of the keys to success in Realty’s industry is having all of the properties under your ownership being under a lease agreement, and Realty has one of the highest occupancy rates in the industry (97.0%)
  • Portfolio Diversification: The company owns a portfolio of 2,634 properties, most of which are leased out for commercial utilization; with locations scattered throughout the 49 states and properties in 38 industries from apparel to fitness
  • Accelerated Growth: In 2004, the company reported revenue of $177.6 million, in 2011, Realty reported revenue of $421.6 million, which represents year over year annual growth of 13.15%, and this double digit growth is projected to continue into the future  


  • Steep Valuation: The company trades with a price to earnings ratio of 45.13, a steep valuation for a company even with Realty’s caliber of growth
  • Dependence on Economic Prosperity: Realty relies on companies to lease their properties, and when the economy is in downfall, occupancy falls, and Realty is left with hundreds of properties with no one to lease them
  • Debt: The company currently has around $1.814 Billion of debt, most of the debt is from loans taken out to invest in new properties, and until they pay down this debt it will weigh heavily on their core business


  • Acquisitions: In 2011, the company acquired 164 new properties, and further acquisitions of quality property is inevitable
  • Increasing Occupancy Rate: While a 97.0% occupancy is one of the best in the industry, there were times in the company’s history in which all of their properties were occupied, and there is always an opportunity to improve
  • Selling Properties for a Premium: In 2011, the company sold 26 properties to other companies, and selling properties is a tremendous way to raise cash in times of contraction


  • Rough Real Estate Market: A volatile real estate market has left the company with properties it drastically overpaid for, however because of their business model it is only a matter of time before the company regains its initial investment
  • Economic Downfall: When the United States economy experiences downfall, some of the companies that occupy Realty’s properties do not have the money to continue to operate, and default on their rent payments, leaving Realty with an investment that is paying no dividends
  • Competition: Other companies offer property for leasing much like Realty’s and sometimes for less, leading to fierce competition which leads to margin contraction (Net Profit Margin= 35.89%)  


Major publically-traded competitors of Realty Income include Essex Property Trust Incorporated (NYSE: ESS) and Taubman Centers Incorporated (NYSE: TCO). Essex owns or holds an interest in 159 communities, mostly along the west coast, and is valued at over $5 billion on the market. The company pays out a dividend, which annualized yields 3.08%. Taubman’s portfolio consists of 23 urban and suburban shopping centers in 11 states. The company also pays out a dividend, which annualized yields 2.39%.  

The Foolish Bottom Line:

Realty Income possesses several strengths, weaknesses, opportunities, and threats; however in the end appears to be a financially strong company with a stable and predictable future. The company’s business model is consistent and effective, and the dividend the company pays out is tremendous. The recent pullback in this stock provides an incredible opportunity for investors to pick up a quality dividend play that will be able to weather the current economic volatility.    

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