Realty Income stock continued its strong freefall this week and is hovering at its lowest level since December last year. O peaked at $66.20 in July and has now retreated to $53.30, with its valuation falling from over $63 billion to $50 billion. So, is it safe to buy the dip?

The ongoing retreat has coincided with that of other companies in the REIT industry. The closely watched Vanguard Real Estate ETF (VNQ) has dropped to $89.15, its lowest level since April 7 and by 11.6% from its all-time high. 

Why Realty Income stock has plunged

Realty Income and other REIT stocks have retreated in the past few weeks because of the rising US bond yields. The ten-year yield jumped to 5.3%, while the five-year and thirty-year rose to 5.05% and 5.66%, respectively.

US Treasury yields have jumped because of the ongoing US debt surge that has pushed the total figure to over $40.2 trillion. These yields may continue rising as the US budget deficit continues rising.

Rising US yields have an impact on a company like Realty Income. First, it pushes investors from REITs to government bonds, where they can receive a similar payout. In this case, Realty Income has a yield of 6%, slightly lower than the ten-year of 5.3%. 

Second, these yields have made it more expensive for the company to pay its debt. Indeed, a closer look shows that its debt yield is also rising. The yield of those with maturities at 2035 has jumped to 6.03%, while the 2047 ones are at 6.508%.

Recent earnings show that the company’s interest payments have continued rising, with the annual interest payments rising from $305 million in 2020 to $1.14 billion last year. Its interest expense rose to $313 million last quarter from $285 million in the same period last year.

O has also slumped as investors have started moving from REITs and other traditional industries to the booming artificial intelligence (AI) industry.

On the positive side for the company, its business has continued to do well, with most of its tenants paying their rent on time. The company also maintains a high occupancy rate of over 96%. 

In the last quarter, its revenue came in at $1.55 billion, up modestly from the $1.42 billion it made in the same period last year. 

Realty Income share price technical analysis

O stock chart | Source: TradingView

The daily chart shows that the Realty Income stock has slumped in the past few weeks. It has slumped from a high of $65.95 in July to the current $53.7. It formed a double-top pattern and a neckline of $58. A double-top is one of the most common bearish signs in technical analysis.

The stock has already formed a death cross pattern as the 50-day and 200-day Exponential Moving Averages (EMA) have crossed each other. This pattern is one of the riskiest patterns in technical analysis. 

The Average Directional Index (ADX) has continued rising to 47. Therefore, the path of the least resistance for the stock is downwards, potentially to $50.

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