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$O | Why Realty Income Dropped Today

While known for its stability, Realty Income (O) wasn't immune to Wednesday's higher than expected inflation report. The stock price dropped 4% following the news.

$O Realty Income

Here's why inflation is a concern for Realty Income:

  • Higher Borrowing Costs: Like many REITs, Realty Income relies on borrowing for expansion. Rising interest rates make these loans more expensive, hindering growth.

  • Bond Competition: Inflation-driven interest rate hikes can make bonds more attractive. Investors who hold Realty Income partly for its 5.7% dividend yield might shift towards bonds if their returns become more competitive.

  • Recession Risk: Inflation and rising rates could trigger a recession, impacting even "recession-proof" tenants.

  • Soaring inflation: throws a wrench into Realty Income's (O) plans. With borrowing costs potentially staying high due to a lack of rate cuts, expansion could be pricier. Additionally, high rates could dampen real estate growth, impacting future acquisitions.


Impact on Realty Income:

Realty recently acquired Spirit Realty, adding to its existing debt load. While rising rates might not severely hurt the business, they could impact the stock price.

However, a significant sell-off could present a buying opportunity for this long-term player.


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