Realty Income Corporation (NYSE:O) yields around 5.5% right now. For many income investors, that number alone looks attractive.

But here’s the thing most beginners miss: yield doesn’t tell you if a dividend is safe. It tells you what you’d earn if the company keeps paying. The question is whether they can.

A stock yielding 8% sounds better than one yielding 5%. Until the 8% yield gets cut in half. Then you’re stuck with a 4% yield and a stock price that dropped 30%.

This happens more often than people think. And it usually happens to investors who only looked at yield.

So before buying any dividend stock, you need a checklist. Not a complicated one. Just a few numbers that tell you whether the payout is built on solid ground — or borrowed time.

This checklist isn’t about predicting price moves. It’s about spotting stress before it reaches the dividend.

Here’s what I check for Realty Income.

1. Payout Ratio: How Much Are They Keeping?

The payout ratio tells you what percentage of earnings goes to dividends. The rest stays with the company — for debt payments, growth, or emergencies.

In Q3 2025, Realty Income paid $0.81 per share in dividends while earning $1.08 in adjusted funds from operations (AFFO).

That’s a 74.77% payout ratio.

What does this mean? For every dollar earned, 75 cents goes to shareholders. 25 cents stays with the company.

For REITs, 70–80% is the normal range. At 74.77%, Realty Income sits toward the higher end — acceptable, but not a lot of extra cushion.

If this number creeps above 90%, that’s a warning sign. Above 100% means they’re paying out more than they earn. That’s not sustainable.

Verdict: ✓ Normal range, but watch for drift.

2. Fixed Charge Coverage: Can They Pay Their Bills?

This one sounds technical, but the concept is simple: does the company earn enough to cover its debt payments?

Realty Income’s fixed charge coverage ratio is 4.6x.

That means for every $1 of debt obligations, they generate $4.60 in earnings. If this number drops below 2.5x, lenders start getting nervous. Below 2.0x, refinancing becomes harder and more expensive.

At 4.6x, Realty Income has meaningful breathing room. They could absorb higher interest rates or a few tenant losses without immediately threatening the dividend.

Verdict: ✓ Well above the danger zone.

3. Credit Rating: What Do the Agencies Think?

Think of credit ratings like a credit score — but for companies. Higher is better, and it affects how cheaply they can borrow money.

Realty Income carries an A- rating from S&P and A3 from Moody’s. Both are investment grade.

Why does this matter for dividend safety?

Because REITs constantly refinance debt. If borrowing costs spike, that eats into earnings. If earnings drop, the dividend comes under pressure.

An A- rating means Realty Income borrows at relatively low rates. It also means they sit several notches above the BBB- line — the boundary where some institutional investors are required to sell if a company gets downgraded below it.

That distance matters. It’s not just about interest costs. It’s about avoiding forced selling pressure that can hammer a stock price.

Verdict: ✓ Solid rating with buffer from the cliff.

4. Liquidity: Do They Have Cash on Hand?

Liquidity tells you whether the company can handle short-term surprises without panic.

As of Q3 2025, Realty Income reported $3.5 billion in total liquidity. This includes cash and available credit lines.

Why does this matter? Because real estate is lumpy. Tenants leave unexpectedly. Acquisitions need funding. Debt comes due.

A company with thin liquidity might be forced to cut the dividend just to keep the lights on. A company with $3.5 billion in reserves has options.

Verdict: ✓ Strong cash position.

5. Occupancy: Are Tenants Actually Paying?

REITs collect rent. If tenants leave, rent stops. If rent stops, dividends get harder to pay.

Realty Income’s occupancy rate is 98.7%.

That means out of roughly 15,400 properties, only about 1.3% are sitting empty. For context, anything above 95% is considered healthy for net-lease REITs.

At 98.7%, Realty Income is running near full capacity. The rent is flowing.

Verdict: ✓ Minimal vacancy risk.

What I’d Watch

Realty Income reports Q4 2025 results on February 24, 2026. That’s the next checkpoint.

Before then, the checklist summary looks like this:

All five boxes check out. That doesn’t guarantee the dividend is bulletproof — nothing does. But it means the foundation is solid.

The Bigger Picture

This checklist won’t tell you if Realty Income is a good investment. That depends on valuation, interest rates, and a dozen other factors.

But it answers a narrower question: Is the dividend at immediate risk?

Based on Q3 2025 numbers, the answer is no. The payout is covered. The debt is manageable. The tenants are paying. The rating is strong.

If any of these metrics start sliding — especially payout ratio drifting toward 85% or coverage dropping toward 3.0x — that’s when you revisit.

Until then, the 5.5% yield looks like it’s standing on real ground. Not quicksand.

Next in this series: What “Buffer Half-Life” means — and how to estimate when a dividend cushion might run thin.

Disclosure: The author holds no positions in Realty Income Corporation (O) and has no plans to initiate any positions within 72 hours. This article reflects the author’s own analysis and is not investment advice. Financial data sourced from Realty Income’s Q3 2025 earnings materials and investor presentation.

Benzinga Disclaimer: This article is from an unpaid external contributor. It does not represent Benzinga’s reporting and has not been edited for content or accuracy.