Realty Income (NYSE: O) stock price has been in a deep bear market this year amid rising concerns about interest rates and its dividend health. The shares crashed to a low of $48.30 on October 3rd. In all, it has crashed by over 23% from the YTD high and by 28% from its 2022 high.

Realty Income, popularly known as the Monthly Income Company, is a large REIT that is loved by both investors and analysts. It has paid monthly dividends for over 54 years and raised them for 25, making it a dividend aristocrat.

Data by Yahoo Finance shows that most analysts have a neutral rating on the stock. The average target by investors is $63.30, a 23% upside from the current level. Additional data by SeekingAlpha reveals that most analysts have a bullish view of the company.

There are three main reasons why analysts love Realty Income. First, it has a long track record of paying and hiking its dividends over the years. It did that during crucial black swan events like the Covid-19, 911, dot com bubble, and Global Financial Crisis (GFC). It now has a dividend yield of 6.2%, which is still attractive.

Second, the company has maintained an investment grade rating by all rating agencies like Moody’s and S&P. The implication is that it can borrow money at the Secured Overnight Financing Rate (SOFR).

Third, the company owns diverse properties across the US. It has over 13,118 leased properties that are leased to 1,303 tenants. The occupancy rate stands at 99%, with the average term of almost 10 years. These figures mean that the company can comfortably maintain its payouts since it also has a good balance sheet.

Finally, there is a view that Realty Income stock is quite undervalued at these values. This undervaluation explains why its yield has jumped to 6.2%, the highest point in over a decade. The stock has an FFO multiple of 12x, lower than its key peers like NNN, VICI, and Essential Properties Trust.

Realty Income stock chart by TradingView

I believe that Realty Income is a great blue-chip company that has a good track record of rewarding its shareholders. It maintains a good balance sheet and well-diversified properties across the US.

However, the company still has some challenges that could affect its performance in the near term. The biggest one is that interest rates have jumped and are expected to remain high for longer. The official cash rate now stands at between 5.25% and 5.50%. REITs did well in an era of low interest rates and they could struggle if they continue rising as some analysts expect. Fortunately for Realty Income, it is able to address its upcoming maturities well.

The other risk for Realty Income is that it has become very big, limiting its potential growth. A key challenge is that the company is now moving to portfolio acquisitions instead of unit buyouts. Portfolio buyouts always come with some bad assets.

My long-term outlook for Realty Income is positive since the company will stabilise in the new normal. In the near term, however, I suggest staying in the sidelines since it could drop further than this. This view is based on trend-following principles, which suggest avoiding catching a falling knife. 

Only buy the stock if it moves above $56.92, the neckline of the double-top pattern that formed between June and July. Alternatively, wait until a golden cross pattern forms. This pattern forms when the 50-day and 200-day EMAs crossover.

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