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Realty Income (NYSE: O) has been a wealth-creating machine over the years. The real estate investment trust (REIT) has produced a 13.4% compound annual total return since its public market listing in 1994. Investors have grown richer thanks to its attractive, steadily rising dividend.

The REIT is in an excellent position to continue growing shareholder value in 2024. Here’s a closer look at its value proposition.

A strong base return

Realty Income’s dividend has been a big driver of its strong total returns over the years. The company has increased its payout 122 times since coming public, including by 3.2% over the past year. It currently pays a monthly dividend of $0.256 per share ($3.072 annually), giving it a 5.8% dividend yield at the recent share price.

That high-yielding payout provides investors with a very strong base return. For comparison, the dividend yield on the S&P 500 is currently around 1.5%. Thanks to its much higher dividend yield, Realty Income doesn’t need to grow very fast to deliver an attractive total return.

For example, the REIT has increased its adjusted funds from operations (FFO) by 4.1% per share over the past year, driven by rent growth and acquisitions. “Combined with our dividend, we are pleased to have delivered an annualized total operational return up approximately 9%,” stated CEO Sumit Roy on the third-quarter conference call.

While the company’s current share price doesn’t reflect this earnings growth due to the challenging capital markets this year, Realty Income still grew the value of the REIT while returning significant value to shareholders through its high-yielding dividend.

Well positioned for 2024

The current challenges in the capital markets are making it more difficult for REITs to grow. Higher interest rates have made borrowing money more expensive, while lower share prices have made issuing equity more dilutive.

The good news for Realty Income is it doesn’t need to rely on the capital markets to grow in 2024. The company’s pending $9.3 billion acquisition of Spirit Realty (NYSE: SRC) is a big driver. Realty Income is using its stock to fund the deal, while assuming all of Spirit Realty’s debt. Because of that, it doesn’t need to tap the capital markets to fund the highly accretive acquisition.

The REIT expects the deal to boost its adjusted FFO per share by more than 2.5% next year. “The accretion from the transaction, once completed, creates the foundation for AFFO-per-share growth in the coming year and puts us in a unique situation where we’ve had good visibility to an attractive forward earnings growth rate potential two months prior to the start of the new year,” stated Roy on the third-quarter call.

Meanwhile, even after going on an acquisition binge this year, Realty Income has lots of liquidity to continue making deals. It ended the third quarter with $344 million of cash on hand and $3.4 billion available on its credit facility.

These factors set the REIT up to continue growing at a decent pace in 2024, even if the capital markets remain challenging. Roy commented on the call:

If…you look a year ahead in 2024, we believe that without having to rely on the equity capital markets, we’ll be able to deliver approximately 4% to 5% AFFO per-share growth. And that is a pretty powerful statement to make, and that obviously assumes that the Spirit transaction closes…either in January or in February. And with just the free cash flow that we are going to generate pro forma, which is going to be right around $800 million, some of the headwinds that we are going to experience in the refinancing, absorbing all of that to be able to sit here today and say that we could deliver that growth without having to raise $1 of equity, I think it’s a very good place to be.

Realty Income has already secured half its projected growth for next year with the Spirit deal. Meanwhile, the combined company will generate about $800 million in post-dividend free cash flow, giving it more money to make acquisitions.

These factors drive the company’s view that it should deliver 4% to 5% adjusted FFO per-share growth without selling any stock to fund deals. Add that to its dividend (which should continue rising), and the REIT has a clear line of sight to produce a 10% to 11% operational total return next year. Meanwhile, there’s upside to that if it can issue equity capital to make additional accretive deals.

A wealth-building machine

Realty Income’s dividend and projected FFO per-share growth position the REIT to produce a total return in the double digits in 2024. There’s ample upside if its share price regains some of the ground it lost this year, which could also enable it to issue equity and grow even faster. These features make Realty Income an attractive investment opportunity for those seeking a low-risk way to earn a high return.

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Matthew DiLallo has positions in Realty Income. The Motley Fool has positions in and recommends Realty Income. The Motley Fool has a disclosure policy.

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