10-Year Treasury Yields Are Back Over 5% After the Fed Raised Rates. 3 Reasons Why This S&P 500 Dividend Stock Is a Better Buy for Long-Term Passive Income Investors

Realty Income highlights a portfolio of more than 15,500 properties across 1,800 clients and its 136th dividend increase since 1994, supporting its case as a source of growing monthly income versus fixed Treasury coupons above 5%. Q2 AFFO per share rose year over year, management raised full-year AFFO guidance and increased its expected 2026 investment volume. New joint ventures, including a KKR private-capital platform and a data-center venture seeded with more than $6 billion of assets, could broaden funding sources and growth opportunities in a higher-rate environment.

Analysis

The relevant valuation driver for O is not dividend history but the spread between its incremental acquisition cap rate and its all-in cost of capital. A private-capital vehicle can preserve transaction volume when public equity is expensive, but it also converts O from a pure net-lease compounder into an asset manager: fee-related earnings and carried interest could support a higher multiple, while co-investment requirements and lower retained economics may limit per-share AFFO accretion. KKR gains a scalable source of long-duration real-estate product without building property-level origination infrastructure.

The data-center venture is strategically more consequential than its initial earnings contribution. It raises O's exposure to a sector with materially higher development, power-availability, tenant-concentration, and residual-value risk than traditional triple-net retail; this could narrow—not widen—the valuation discount to infrastructure only if leases are long term, investment-grade, and largely pass through power costs. The near-term market response should remain rate-driven: a 25-50 bp decline in the 10-year Treasury can re-rate O faster than modest AFFO upside, while persistently elevated real yields compress acquisition spreads and make the equity dividend a less compelling substitute for risk-free income.

Consensus may over-credit headline deployment capacity before seeing economics. Over the next 1-3 months, focus on disclosed JV fee rates, O's equity commitment, stabilized yields, leverage treatment, and AFFO-per-share contribution; a larger platform is dilutive if capital is deployed below O's marginal funding cost. Over 6-18 months, success would broaden O's buyer universe toward alternative-asset managers, whereas impairment, construction delays, or power constraints would expose a mismatch between the legacy defensive-income narrative and higher-beta data-center assets.

Key Decisions for Investors

• Watch, do not add outright O solely on the income narrative. Initiate only after quarterly disclosures demonstrate JV deployment at a positive spread to marginal funding cost and affirm AFFO/share accretion; invalidation is a guidance cut or leverage rising without corresponding per-share growth.
• For a rates-led trade, use a 1-3 month long O / short VNQ pair after the 10-year Treasury breaks below its 50-day moving average; O should outperform if lower yields restore its acquisition currency and private-capital platform receives valuation credit. Exit if the 10-year reverses higher by 40 bp or O underperforms VNQ by 5%.
• Prefer long KKR over O for the private-capital angle over 6-18 months: KKR captures management fees with less direct exposure to retail lease renewals and public-REIT cost-of-capital volatility. Size as a relative-value pair versus O if seeking to isolate the platform thesis; risk is lower fundraising or weaker realization activity across KKR's broader franchise.
• Set an event alert for data-center JV asset-level disclosures: tenant concentration, lease duration, power pass-through, development versus stabilized mix, and O's capital share are required before underwriting a data-center premium. Absent these, treat AI exposure as narrative rather than earnings.