Real estate income (NYSE:O) is often considered a reliable dividend stock for long-term investors. It is one of the largest real estate investment trusts (REITs) in the world, pays monthly dividends and has increased its payouts 127 times since its 1994 IPO.

Over the past 30 years, Realty Income has generated a total return of 4,960% with dividends reinvested, which easily beat the S&P500The total return of 2,030%. But as 2025 approaches, should investors buy, sell or hold this leading REIT stock?

Image source: Getty Images.

Key facts and figures

Retail REITs like Realty Income, buy commercial properties, rent them out, and distribute most of that rental income to their investors in the form of dividends. To maintain a favorable tax rate, U.S. REITs must pay out at least 90% of their taxable income as dividends.

To analyze a REIT, we need to look at growth in total properties, occupancy rates, and adjusted funds from operations (AFFO) per share — which more accurately assesses a REIT’s profitability than its earnings per share (PES). At Realty Income, all three metrics have been growing at a steady pace.

Data source: Real estate income.

Realty Income also merged with its smaller competitor, Spirit Realty Capital, in January 2024. This all-stock merger added 2,037 properties to its portfolio.

Reasons to sell or avoid real estate income

Realty Income’s business looks strong, but bears don’t like it because interest rates are still high and some of its major tenants are stumbling.

The Federal Reserve finally lowered its benchmark interest rate for the first time in four years in September, but it could slow future rate cuts if it fails to bring inflation under control. If this happens, REITs will lose their luster for two simple reasons. First, high interest rates will make purchasing new properties more expensive. Second, high rates will make investments risk-free CD And Treasury bills more attractive than REITs and other dividend stocks.

The other major problem is that two of Realty Income’s largest tenants — Walgreens (NASDAQ:WBA) And Dollar tree (NASDAQ:DLTR) — have difficulty. Walgreens, which accounted for 3.3% of Realty Income’s annualized rent at the end of the second quarter of 2024, plans to close 1,200 stores over the next three years. Dollar Tree, which accounted for 3.1% of its annualized rent, will close about 1,000 stores over the next few years. Some of Realty Income’s smaller tenants, including CVS, AMCand Red Lobster – are also closing many of their brick-and-mortar locations.

Reasons to buy and hold real estate income

Bulls believe these concerns are overblown, that Realty Income’s dividend is attractive, and that its shares still look cheap. The 10-year Treasury yield of 4.4% is already well below Realty Income’s 5.4% forward yield, and the Fed is still expected to cut interest rates several times. repeated over the next year. If this trend continues, Realty Income and other REITs will become much more attractive than CDs, Treasuries, and other fixed-income investments.

As for its weaker tenants, these leases will gradually expire over the next few years, so it still has plenty of time to recruit new tenants. Many of Realty’s strongest tenants, including Dollar General (NYSE:DG) And Walmart (NYSE:WMT) – could also offset this pressure as they continue to open new stores.

Realty Income also serves more than 1,500 tenants in 90 different areas, and its occupancy rate has never fallen below 96% since its IPO. This scale and diversification should address these short-term concerns and help generate stable returns over the long term.

Realty Income shares have already joined more than 20% over the past 12 months in anticipation of further rate cuts. But at $60, it still looks cheap, 15 times higher than last year’s AFFO per share. Its low valuation and high yield should limit its downside potential and make it a safe investment for income investors.

Is now a good time to buy, sell or hold Realty Income stock?

Realty Income is not an exciting growth stock. But buying and holding this REIT now makes a lot more sense than selling it. Investors should certainly keep an eye on interest rates and the health of its major tenants, but its obvious strengths will likely outweigh these minor weaknesses.

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Leo Sun holds positions in the real estate income sector. The Motley Fool has positions and recommends Realty Income and Walmart. The Motley Fool recommends CVS Health. The Motley Fool has a disclosure policy.