This Robinhood Stock Has a 5% Dividend Yield – Is It Too Good to Be True?

Investors are right to be wary of stocks with high dividend yields. Although these yields look attractive on the surface, investors should remember that dividend stocks that are not real estate investment trusts (REITs) can adjust dividend payments at any time. Additionally, REITs have the same freedom as long as they pay out at least 90% of their net income in dividends.

This fact may have investors wondering what to do with a REIT called Real estate income (NYSE: O)a popular action in the Robinhood Markets platform. Known for paying a monthly dividend, its 5% dividend yield is more than quadruple the S&P 500 average of 1.2%. Does that high performance make the pay too good to be true? Let’s take a closer look.

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Realty Income owns more than 15,500 single-tenant net leased properties. Under the terms of these contracts, the tenant pays insurance, property taxes and maintenance, ensuring a stable income for the owner.

Additionally, occupancy is just under 99%, meaning the company is always looking to acquire or develop additional properties. Additionally, since its tenant list includes companies like house deposit, general dollarand Tractor supplyIt has a stable customer base.

That property portfolio funds an annual dividend of $3.24 per share, and its monthly payout has increased at least once a year since its inception in 1994. That streak sets an expectation of periodic dividend increases, and could undermine confidence in the stock if its payout doesn’t increase at least once a year.

For that reason, Realty Income is unlikely to dramatically cut its dividend unless it can’t afford to sustain it. Fortunately, dividend affordability doesn’t seem to be an issue for this company.

In the third quarter of 2025, it earned $4.20 per share in funds from operating income, a measure of a REIT’s free cash flow. That cash allows Realty Income to cover the $3.24 per share in dividends and leaves some cash available for other purposes.

Investors should also keep in mind that lower stock prices increase dividend yields. Therefore, the fact that Realty Income shares are trading at a more than 20% discount to the all-time high has contributed to the higher dividend yield.

Additionally, the Federal Reserve has cut interest rates in recent months. That should reduce credit costs, making more real estate deals profitable. Therefore, as earnings rise, the stock should rise as well, possibly making Realty Income one of the smartest dividend stocks to buy.

Ultimately, Realty Income can afford to maintain its dividend despite its 5% yield.

In fact, investors should become cautious when seeing such returns, and just because a stock is popular on Robinhood doesn’t mean investors should buy it.

Fortunately, Realty Income’s FFO earnings far exceed the cost of its dividend. Additionally, the REIT offers shareholders a stable tenant base, high occupancy rate and continued expansion. Therefore, its investors should benefit from a growing high-yield dividend and, over time, a higher share price driven by lower interest rates.

Before you buy Realty Income stock, consider this:

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Will Healy has positions in Realty Income. The Motley Fool ranks and recommends Home Depot, Realty Income, and Tractor Supply. The Motley Fool recommends the following options: Short April 2026 calls for $55 at Tractor Supply. The Motley Fool has a disclosure policy.

This Robinhood Stock Has a 5% Dividend Yield – Is It Too Good to Be True? was originally published by The Motley Fool