Realty Income’s monthly dividends will become more attractive as interest rates decline.
Opendoor’s iBuying business could stabilize as the housing market warms up.
The income-generating stalwart might be a better buy in this frothy market.
Realty Income (NYSE: O) and Opendoor Technologies (NASDAQ: OPEN) are real estate stocks that appeal to different types of investors. Realty Income is a leading real estate investment trust (REIT) that purchases retail properties, then rents them out. Opendoor makes instant cash offers for homes, fixes them up, and relists them for sale.
Realty Income’s stability and monthly dividends make it attractive for income investors. Opendoor, which is unprofitable but expanding at a much faster rate, might attract more growth-oriented investors. Both companies struggled in 2022 and 2023 as rising interest rates drove up the costs of purchasing new properties. But as interest rates decline, more investors could pivot to Realty for income and Opendoor for speculative growth.
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So which of these real estate stocks is a better investment right now?
Realty Income owns more than 15,600 commercial properties, which it leases to over 1,600 different clients in the U.S. and Europe. As a REIT, it must pay out at least 90% of its pretax income as dividends to maintain a lower tax rate. It’s a triple net lease REIT, which passes its real estate taxes, insurance costs, and maintenance fees onto its tenants.
Realty Income mainly rents its properties to recession-resistant retailers. Last year, its top tenants were Walgreens, 7-Eleven, Dollar General, and Dollar Tree, but no single tenant accounted for over 3.5% of its annualized rent. Some of its tenants are struggling with store closures in this challenging market, but its healthier tenants are consistently offsetting that pressure with new store openings. That’s why Realty’s occupancy rate still rose from 98.6% in 2023 to 98.7% in 2024. It’s also kept that rate above 96% since its IPO in 1994 — even as three major recessions rattled the global economy. That stable growth enabled it to raise its monthly dividends 132 times since its public debut, and it currently pays a forward yield of 5.3% — which is much higher than the 10-year Treasury’s 4.1% yield.
Lower interest rates will make it cheaper for Realty Income to purchase new properties, reduce the macro headwinds for its tenants, and make its dividends more attractive than CDs and T-bills. It expects its adjusted funds from operations (AFFO) per share to rise from $4.19 in 2024 to between $4.24 to $4.28 in 2025 — which will easily cover its forward dividend rate of $3.21 per share. And at its current price of $60, it still looks like a bargain at 14 times this year’s AFFO per share.
Opendoor’s instant buying (iBuying) platform uses AI algorithms to price its cash offers and listings. This capital-intensive business model thrives when interest rates are low, but it faced an existential crisis when those rates surged. That intense pressure forced Zillow and Rocket‘s Redfin to shut down their own iBuying platforms in 2022.
But as the last major iBuyer standing, Opendoor is well-poised to benefit from the market’s recovery as interest rates decline. As the Federal Reserve cut its benchmark rates three times in 2024, Opendoor ramped up its home purchases again and streamlined its spending. It also forged new licensing partnerships with home builders, real estate platforms, and listing agents to diversify its marketplace and gradually curb its dependence on its capital-intensive iBuying platform. Its new Opendoor Exclusives marketplace even leverages its own AI algorithms to directly connect sellers to buyers without requiring the company to purchase and renovate the properties.
Opendoor’s near-term outlook remains murky since mortgage rates remain high even after the Fed’s rate cuts, buyers are backing off, and sellers are taking their properties off the market. The company also plans to dial back its own home purchases for 2025 as it grapples with those near-term challenges. But over the long term, its business should stabilize and grow again as the housing market warms up, and its new CEO and returning co-founders could breathe some fresh life into its business.
Assuming that happens, analysts expect Opendoor’s revenue to rise 6% in 2026 and 16% in 2027. They also expect its adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) to turn positive by the final year. At $8 per share with an enterprise value of $6.95 billion, the stock still looks dirt cheap at 1.7 times this year’s sales.
Realty Income and Opendoor are both well-positioned to profit from lower rates, but Realty’s scale, diversification, stable profits, and high dividends make it the superior stock right now. Opendoor could still have greater upside potential, but it probably won’t command a much higher valuation until the housing market fully turns around.
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Leo Sun has positions in Realty Income. The Motley Fool has positions in and recommends Realty Income, Rocket Companies, and Zillow Group. The Motley Fool has a disclosure policy.
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