Realty Income (NYSE:O) stock has been in a freefall, mirroring the performance of other top companies in the real estate investment trust (REIT) industry. It ended the week at $55, down sharply from the year-to-date high of $66.53. Notably, it has slumped in the last five consecutive weeks, its worst losing streak in years.
Realty Income Stock is Falling as Risks Rise
Realty Income is one of the most popular dividend companies in the world. It is a dividend aristocrat that has hiked its payouts in the last 31 years. The company uses a relatively simple business model, where it acquires commercial properties, often in the retail and industrial sector.
It then leases the buildings to tenants on a long-term basis and then collects rent from its customers. It uses the triple net lease approach, where its tenants pay most of the costs, including taxes and maintenance. Realty Income boasts an occupancy rate of over 96%.
The stock has plunged because of the rising Treasury yields. The ten-year yield jumped to 5.12%, its highest level in nearly 20 years. Notably, short-term Treasury Bills have seen their yields jump, with the three-month hitting 4.1%. As a result, some income investors are moving to the bond market since Realty Income yields about 5.8%.
Realty Income’s business is also being affected by the rising yields because of its huge debt load. Its interest expense has jumped from $283 million in the second quarter of last year to $312 million in the last quarter. This growth will continue in the future, especially if interest rates remain this elevated.
These risks explain why analysts have started to change their outlooks for the stock. Scotiabank recently downgraded the stock from sector outperform to sector perform, with its price target moving from $67 to $58. Analysts at Evercore, Mizuho, and Barclays have also reduced their targets.
O Stock Formed a Double-Top Pattern
Realty Income stock chart | Source: TradingView
The weekly chart shows that Realty Income shares have also formed a risky chart pattern. It formed a double-top pattern, which is made up of two peaks and a neckline, which, in this case, is at $58.29, its lowest level in March this year.
The stock has dropped below the 38.2% Fibonacci Retracement level and the double-top’s neckline. It has also plunged below the 50-week moving average and the Supertrend indicators.
Therefore, the stock may continue falling as sellers target the 50% retracement level of $52.40, down by 5.7% from the current level. It may also drop to the 61.8% retracement level of $49.
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