Real estate income (O 0.58%) delivered another solid quarter as it reported second-quarter results. Although the stock has struggled over the past five years, the real estate investment trust (REIT) has continued to deliver consistent results while paying an attractive dividend.

Let’s take a look at the latest quarterly report, the security of the dividend and whether the stock can finally rise again.

Another solid quarter

Realty Income reported a 31% jump in revenue to $1.34 billion in the second quarter, driven by the acquisition of Spirit Realty in January and new real estate investments. Rental revenue increased 0.2% in the quarter, while occupancy was 98.8%.

Industrial properties saw strong like-for-like rental income growth of 2.1% in the quarter, followed by a 1.7% increase in gaming properties. Other properties, including data centers, saw like-for-like rental income increase of 4.1%. However, retail like-for-like rental income, the largest category, declined 0.3%.

Realty Income’s diversification efforts over the past few years into the gaming and data center sectors, as well as the additional industry presence gained through the acquisition of Spirit Realty, appear to be paying off.

Realty Income also invested heavily in real estate during the quarter, investing $806 million in a secured debt security issued by British grocer and tenant Asda. The debt security yields 8.1 percent, which is just above the 7.9 percent weighted average cash return Realty Income earned on its investments during the quarter. The weighted average cash return in Europe was slightly higher at 8 percent.

The REIT also sold 75 properties for $106 million during the quarter. It now plans to sell $400 million to $500 million worth of properties this year, while also investing about $3.0 billion this year.

The company’s adjusted funds from operations (AFFO) rose 6% to $1.06. AFFO is a measure of the cash flow a REIT can generate from its operations. Realty Income prefers this metric because it is not affected by different depreciation assumptions among REITs and is therefore more standardized.

Realty Income largely maintained its previous full-year guidance, last updated in early June. The company still plans to invest about $3 billion in new properties while delivering a 1% increase in rental income and occupancy above 98%. It also reiterated its full-year AFFO per share guidance of between $4.15 and $4.21, which it raised slightly in June from a previous forecast of $4.13 to $4.21.

A secure and growing dividend

When considering the safety of a REIT’s dividend, one of the best yardsticks is the difference between the AFFO generated and the dividends paid. In this regard, Realty Income generated AFFO per share of $1.06 while paying out $0.777 per share in dividends. The AFFO payout ratio improved to 73.3% from 76.5% last year. This shows that Realty Income’s cash flow easily covers dividend payments and that the company has room for further increases.

In July, the company increased its dividend to an annual payout of $3.156 per share. It was the 107th consecutive quarterly dividend increase and the 649th consecutive monthly dividend increase.

While there has been pressure on some Realty Income tenants recently, such as Walgreens and Red Lobster, overall the REIT’s dividend looks safe given its solid payout ratio and occupancy rates. It has also benefited from its diversification strategy.

Image source: Getty Images.

A changing environment

In recent years, Realty Income’s stock has suffered from higher interest rates and, subsequently, higher cap rates, which have led to declines in the value of its commercial properties. However, high cap rates have also led the company to invest at more attractive cap rates and collect higher rents when renewing leases, as reflected in its 105.7% rent recovery rate for the quarter on the properties it has released.

With the Federal Reserve seemingly at the beginning of a rate-cutting cycle, the trends of the past few years should reverse and Realty Income should see its real estate values ​​increase as capitalization rates follow falling rates. This, in turn, should finally give the stock a boost.

This outlook, combined with a solid 5.2% yield and a monthly dividend payout, makes Realty Income stock an attractive buy right now.