Realty Income Looks Like It Trades at 52 Times Earnings. On the Measure REITs Are Actually Judged by, It's About 15.
A 5.1% yielder at 52 times earnings sounds absurd. The number measures the wrong thing.
Overview
Pull up Realty Income (NYSE: O) on a quote page, and one number jumps out. The real estate investment trust (REIT) trades at about 52 times earnings, a multiple normally reserved for fast-growing tech companies. For a dividend stock that yields about 5.1% and grows a few percent a year, that looks absurd.
The valuation metric is accurate. It's also, I'd argue, close to useless for investors who don't look beneath the surface. Measured against the cash flow the business actually generates, the same stock, at around $64 as of this writing, costs about 15 times.
Details
So which number should a dividend investor trust?
Source
Originally published at www.fool.com.
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