Tariff Very Bad News for Realty Income Buy The Dip?

$Realty Income(O)$ $Dollar General(DG)$

Today, I’ve got some difficult news to share regarding Realty Income—also known as “O,” or the Monthly Dividend Company.

I broke down why I believed Donald Trump’s return to the presidency—and more specifically, his trade policies—posed a major risk to Realty Income’s long-term fundamentals. Well, now it’s happening. And unfortunately, the outlook may have gotten even worse.

Why Tariffs Are Bad News for Realty Income

At the heart of the issue is the Trump administration’s renewed push for aggressive tariffs, particularly targeting countries like China. These tariffs are already beginning to impact a wide range of consumer goods and retail supply chains—and they have the potential to hit Realty Income on two fronts:

1. Through higher inflation, which erodes the value of its rental income; and

2. Through added pressure on its tenants, many of whom operate in highly sensitive retail categories.

Let’s break this down.

Inflation Risk: Realty Income’s Rent Increases Aren’t Keeping Up

One of the key selling points of Realty Income over the years has been its stability. It owns and manages thousands of single-tenant properties, mostly leased under long-term contracts to well-known retail chains. But the problem is this: most of those contracts only include 1% annual rent escalations.

That’s fine during periods of low inflation. But when tariffs start to push up the cost of goods across the board, we get inflation. And suddenly, that 1% rent bump doesn’t go nearly as far.

Think of it this way: if your rent goes up by 1% but the cost of living—driven by inflation—rises by 4% or 5%, then the real purchasing power of that rental income is falling.

And we’re already seeing signs of this strain.

In its latest 2025 guidance, Realty Income is projecting FFO (Funds From Operations) per share growth of just 1.4%. That’s a pretty anemic figure—and it reflects not only the weak pricing power built into their lease contracts, but also the pressure their tenants are under.

Realty Income prides itself on being a dividend stalwart. But dividend growth is likely to mirror this slower FFO growth. The company wants to protect its balance sheet and maintain a healthy payout ratio—understandably so. But for shareholders, that means we’re looking at very limited dividend increases going forward, especially if inflation picks up.

And if you’re a retiree or income-focused investor relying on those monthly dividend checks? This is where things get painful. Because even if your income is nominally stable, its real value is declining—and that’s a huge concern in an inflationary environment.

Tenant Risk: Tariffs Could Squeeze Key Retail Partners

Now let’s talk about the other side of the equation—the tenants. Realty Income may be diversified across industries, but it remains heavily exposed to retail—particularly to discount stores and pharmacies.

Let’s take a look at the top tenants. I’ll show the chart here on the screen, but just to name a few:

• Walgreens (2nd largest tenant)

• Dollar General (3rd)

• Dollar Tree (4th)

These companies all rely heavily on low-margin business models, and a huge portion of the goods they sell are imported from low-cost manufacturing hubs like China.

With the Trump administration now slapping a 104% tariff on Chinese goods, this puts an enormous strain on their supply chains. The cost of goods sold goes up—but their ability to raise prices is limited, especially because their core customers are low-income households.

Walgreens: Trouble Already Brewing

Let’s start with Walgreens. The pharmacy space has been under immense pressure for years.

• Oversaturation of retail pharmacies

• Fierce competition from online players like Amazon

• Rising labor costs

• Shrinking profit margins on generic drugs

Walgreens has already been forced to shutter hundreds of locations and restructure its operations. Its stock price has plunged.

But it gets worse. In a recent interview with Agri Realty, one of Walgreens’ landlords, the CEO mentioned that Walgreens might eventually have no choice but to file for bankruptcy—not necessarily because the company is insolvent, but because it needs a way to exit long-term leases tied to unprofitable locations.

That’s alarming. And if that were to happen, it would hit Realty Income directly. Remember, long-term leases are only good if the tenant can afford to honor them.

And again, with tariffs now dramatically increasing the cost of imported pharmaceutical products, that margin pressure tightens. And the likelihood of further store closures—or even financial restructuring—grows.

Dollar Stores: Tariffs Strike at the Core Business Model

Next, we’ve got Dollar Tree and Dollar General.

These stores exist to sell cheap goods to budget-conscious consumers. Many of their products come directly from countries like China—everything from household supplies to toys, seasonal items, and more.

Now imagine that the cost of those goods doubles overnight due to tariffs. These companies can’t just pass those increases along to consumers—because their customer base can’t afford it.

Dollar Tree, in particular, is at risk. Unlike Dollar General, which has pivoted more toward grocery and essential items, Dollar Tree still leans heavily on non-essential, imported goods.

In short:

• Higher import costs

• Weakened consumer spending power

• Little room to raise prices

That’s a recipe for margin compression, store closures, and potentially even tenant defaults over time.

However, Dollar Tree remains heavily exposed to discretionary consumer products, many of which are sourced from China. With the latest wave of tariffs, this could place significant pressure on their margins.

Unfortunately, like Walgreens, Dollar Tree has already been facing serious challenges in recent years. The company recently announced plans to close around 1,000 stores in the near term. Now, with these tariffs compounding the pressure, conditions are likely to deteriorate further.

To add to the uncertainty, Dollar Tree’s CEO has just stepped down, signaling potential instability at the top. Meanwhile, one of its key competitors—99 Cents Only Stores—has already filed for bankruptcy. I’m not suggesting Dollar Tree is headed for bankruptcy, but these developments point to more pain ahead: more store closures, weaker performance, and deteriorating investor sentiment.

This is especially problematic for Realty Income, which leases a large number of properties to Dollar Tree. You might wonder: why doesn’t Realty Income just sell those properties and reduce its exposure?

I wish it were that simple.

The issue is that the market isn’t blind to these risks. It has already repriced many of these retail properties at significantly higher cap rates to reflect the growing uncertainty. Just in the past month, I’ve come across multiple listings for Walgreens-leased assets priced at 8% cap rates or higher. That used to be almost unheard of. These assets used to trade at much lower cap rates—but now, investors are demanding a bigger risk premium.

What this means is that if Realty Income were to sell those properties, it would likely have to reinvest the proceeds into lower-yielding, higher-quality assets, resulting in dilution to its FFO per share.

And keep in mind: Realty Income is already guiding for only 1.4% FFO per share growth this year. So further dilution from capital recycling would make an already sluggish growth profile even weaker.

What This Means for Realty Income

So what does all this add up to?

• Slower FFO growth

• Minimal dividend increases

• Higher inflation risk

• Increased tenant instability

• Potential for negative investor sentiment and share price pressure

And perhaps most importantly: the thesis of Realty Income as a “safe, inflation-protected dividend stock” is starting to crack. Investors are increasingly questioning whether the stability and predictability of the past decade will hold up in this new, more volatile macro environment.

I’m Downgrading Realty Income to a HOLD

Personally, I wouldn’t be buying Realty Income right now. The company is facing:

• Slowing growth

• Dilution risk from asset sales

• Mounting tenant problems

• Greater sensitivity to macro pressures like inflation and tariffs

Meanwhile, I believe there are more attractive opportunities elsewhere in the net lease space that are better positioned for today’s environment.

My Verdict: Buy, Hold, or Sell?

So here’s my updated take: I’m downgrading Realty Income to a HOLD.

I wouldn’t rush to sell it if you already own it—especially if you’re sitting on a cost basis much lower than today’s price. The company is still investment-grade, well-managed, and pays a monthly dividend that many investors value.

But in terms of new capital? I think there are better opportunities elsewhere—especially among REITs with stronger internal growth drivers and less retail exposure. In the second half of this article , I’ll walk through a few REITs I believe are currently more attractive from a valuation and growth standpoint.

That’s a tough call. On one hand, tenant risks are growing, and these risks are now being amplified by the Trump administration’s new tariffs. Realty Income has significant exposure to retail categories that are most vulnerable—dollar stores, pharmacies, discount retailers. That’s undeniably bad news.

But on the other hand, the market has already priced in a lot of this risk. The stock has sold off sharply in recent weeks and is now trading at about 12x FFO with a dividend yield over 6%, which is steeply discounted relative to many of its peers.

So in some ways, the downside risk is already partially reflected in the current valuation.

Still, if you believe that Walgreens could ultimately be forced to file for bankruptcy—and remember, the CEO of Agree Realty, who knows Walgreens better than most, recently said he believes this could happen—then there may be more pain ahead. That warning came before the latest tariffs were announced. The risks are now even more pronounced.

Disclaimer: I want to make it clear that I am not a financial advisor, and nothing I say is intended to be a recommendation to buy or sell any financial instrument. Additionally, it's important to remember that there are no guarantees or certainties in trading or investing, and you should never invest money that you can't afford to lose.

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