Prediction: This High-Yield Dividend Stock Will Crush the S&P 500's Returns Over the Next Decade

Key Points

• Realty Income has dramatically underperformed the S&P 500's stellar returns over the past decade.

• The underperformance was due to the macroeconomic environment, not the business itself.

• Realty Income has a long track record of market-beating returns, especially in lower-rate environments.

• 10 stocks we like better than Realty Income ›

I won't sugarcoat it: Realty Income (NYSE: O) has not crushed the S&P 500's total returns over the past decade. Not even close. While the Vanguard S&P 500 ETF (NYSEMKT: VOO) has delivered a 321% total return over the past 10 years, Realty Income has managed just 110%. This certainly isn't a terrible investment result. After all, you would have more than doubled your money. But you would have been far better off with a basic S&P 500 index fund.

I think that's all about to change and that Realty Income -- and other real estate investment trusts (REITs) -- could be at an inflection point.

Where to invest $1,000 right now? Our analyst team just revealed what they believe are the 10 best stocks to buy right now. Continue »

To be perfectly clear, there's nothing wrong with Realty Income's business. It owns nearly 16,000 properties, its occupancy rate is consistently above 98%, and the business is built for a predictably growing income stream. And it keeps delivering solid results and dividend raises.

In fact, Realty Income has increased its dividend for the past 112 consecutive quarters. Not only that, Realty Income's leadership team has done a fantastic job of finding ways to grow in a difficult environment, including forming joint ventures with a data center real estate leader and adding new property types such as gaming real estate.

With that in mind, here's a closer look at why Realty Income has underperformed the S&P 500 over the past decade and why I think that's not going to be the case over the next 10 years.

Why has Realty Income underperformed over the past decade?

It's important to put the past 10 years into context. For one thing, the S&P 500 has done extraordinarily well, fueled by AI-focused mega-cap tech stocks. The index's annualized return has been about 15.5%, which is far greater than the historical average.

Also consider what the past decade has meant for Realty Income and other REITs. For a few reasons, REITs are extremely rate-sensitive stocks. When risk-free interest rates rise, dividend yields tend to rise along with them, and this pushes share prices lower. Plus, REITs rely on borrowed money to grow, and rising rates make borrowing more expensive. Finally, commercial real estate values are closely tied to risk-free rates of return available on instruments such as Treasury securities.

Over the past 10 years, we've had two rising-rate environments with a global pandemic in between that temporarily shut down many of Realty Income's tenants. A decade ago, the benchmark federal funds rate was 400 basis points lower than it is today. That is why Realty Income has underperformed.

The long-term record tells a different story

If we zoom out to a time period that includes a variety of interest rate and economic environments, the numbers paint a much different picture.

In fact, since Realty Income first listed on the New York Stock Exchange (NYSE) in 1994, the difference in performance is staggering. The S&P 500 has produced a very solid 2,430% total return in the 31 years since then, while Realty Income generated a 9,310% total return. Think about that for a minute -- a $10,000 investment in Realty Income in 1994 would be worth more than $930,000 today. And that's including the underperformance of the past 10 years.

O Total Return Price data by YCharts.

It can also help to look at other decade-long periods when conditions were more conducive to REIT returns. For example, in the 10-year period from 2010 through 2019, which was mostly a low-rate environment, Realty Income outperformed the S&P 500 by 96 percentage points.

The bottom line is that Realty Income's business model can produce excellent total returns over time and tends to have the best results in falling-rate or low-rate environments. And with the Federal Reserve widely expected to gradually lower rates over the next several years, now could be a great time to take a closer look.

Should you invest $1,000 in Realty Income right now?

Before you buy stock in Realty Income, consider this:

The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Realty Income wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.

Consider when Netflix made this list on December 17, 2004... if you invested $1,000 at the time of our recommendation, you’d have $621,976!* Or when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you’d have $1,150,085!*

Now, it’s worth noting Stock Advisor’s total average return is 1,058% — a market-crushing outperformance compared to 191% for the S&P 500. Don’t miss out on the latest top 10 list, available when you join Stock Advisor.

See the 10 stocks »

*Stock Advisor returns as of September 29, 2025

Matt Frankel has positions in Realty Income and Vanguard S&P 500 ETF. The Motley Fool has positions in and recommends Realty Income and Vanguard S&P 500 ETF. The Motley Fool has a disclosure policy.