Key Takeaways
- Realty Income and British American Tobacco both yield 6.1%, so $10,000 in either pays $610 a year today.
- Realty Income paid out 75% of its AFFO in fiscal 2025 and has since raised its 2026 AFFO guidance.
- British American Tobacco’s dividends took 78% of its free cash flow over the twelve months to June 2026, after 50% to 55% in fiscal 2021 to 2024.
- British American Tobacco carries less debt, at 2.88x net debt to EBITDA against 5.74x for Realty Income.
Anyone hunting for a 6% yield runs into Realty Income (O) and British American Tobacco (BTI) sooner or later. Both yield 6.1% today, so $10,000 in either pays $610 a year.
The cash behind those checks looks very different, though. Realty Income raised its 2026 AFFO guidance in August, while British American Tobacco expects 2026 revenue growth toward the low end of its 3% to 5% range, as it said again on Sept. 29.
So which is the better high-yield dividend stock?
| Metric | Realty Income (O) | British American Tobacco (BTI) |
|---|---|---|
| Dividend yield | 6.1% | 6.1% |
| Dividend growth, fiscal 2020–2025 | 2.9% a year | 2.2% a year |
| Dividend growth, fiscal 2015–2025 | 3.6% a year | 4.5% a year |
| Coverage | AFFO payout ratio: 75% (fiscal 2025) | Cash dividend payout ratio: 78% (TTM to June 30, 2026) |
| Net debt / EBITDA (LTM) | 5.74x | 2.88x |
| Interest coverage (LTM) | 2.35x | 5.2x |
| Valuation (NTM) | 12.1x price/AFFO | 11.2x P/E |
Realty Income’s cushion keeps getting wider
Realty Income’s AFFO has outgrown its dividend for a decade. AFFO per share rose from $2.88 in fiscal 2016 to $4.28 in fiscal 2025, while the dividend went from $2.39 to $3.22. Over that stretch the AFFO payout ratio slipped from 83% to a well-covered 75%.
That growth is still coming. The company now guides 2026 AFFO per share to $4.44–$4.45, up from $4.41–$4.44.
On Sept. 8, the company announced “the 136th dividend increase since Realty Income’s listing on the New York Stock Exchange in 1994,” and it has raised its dividend “for over 31 consecutive years.”
The main risk is debt. Net debt is 5.74x EBITDA and interest coverage is 2.35x, so growth leans on the capital markets staying open.
British American Tobacco’s cushion got thinner
Where Realty Income leans on debt, British American Tobacco carries far less of it: 2.88x net debt to EBITDA, with interest coverage of 5.2x. Its dividend comes out of free cash flow, and that record is bumpier. Dividends took 50% to 55% of free cash flow from fiscal 2021 to fiscal 2024. In fiscal 2025 they took a risky 91%, when free cash flow fell to £5.79 billion from £9.64 billion in fiscal 2024.
Over the twelve months to June 30, 2026, the cash dividend payout ratio was back to a tighter 78% (£5.32 billion of dividends against £6.85 billion of free cash flow).
Chief Executive Tadeu Marroco said on the July 30 call that the company “will continue to reward our shareholders through strong cash returns, including our progressive dividend and sustainable share buyback.” The buyback comes out of the same cash, so that promise leans on the more than 95% cash conversion management is targeting for 2026.
The growth is in new products. Management describes U.S. Velo nicotine pouches as growing volume and revenue at triple digits, and it guides New Categories to mid-teens growth this year.
TIKR records the dividend in pounds, so the dollar amount of each check moves with the exchange rate. The main risk is volume: excise shocks in markets like Brazil keep cutting the industry’s cigarette sales.
So which dividend wins?
Realty Income is the better high-yield dividend stock. It raised its dividend 2.9% a year from fiscal 2020 to fiscal 2025, against 2.2% for British American Tobacco. At those rates, $10,000 pays about $790 in year 10, a 7.9% yield on your cash. British American Tobacco would pay about $744 (in pound terms), and it never catches up.
What decides it for me is how steady the coverage is. Realty Income’s AFFO payout ratio has stayed between 75% and 83% every year since fiscal 2016. British American Tobacco’s jumped from 55% to 91% in a single year.
And at 12.1x forward AFFO, you aren’t paying up for that steadiness.
That’s well below its five-year average of 14.7x, and near its low of 11.4x from October 2023.
This isn’t to say British American Tobacco’s dividend is in trouble. It carries far less debt, and it raised its dividend faster over ten years (4.5% a year from fiscal 2015 to fiscal 2025, against 3.6%). It’s just that Realty Income has grown the cushion under its dividend far more consistently.
Of course, if British American Tobacco delivers the cash conversion it’s targeting for 2026 and free cash flow climbs back toward fiscal 2024’s £9.64 billion, its dividend would look a lot roomier.
So what is Realty Income stock actually worth?
TIKR lets you forecast the future price of any stock in less than a minute. Just enter a few assumptions into TIKR’s valuation model and see what Realty Income could be worth. Start from Wall Street consensus estimates, or adjust the inputs to reflect your own view of the business. It’s free to use.
Disclaimer:
Please note that the articles on TIKR are not intended to serve as investment or financial advice from TIKR or our content team, nor are they recommendations to buy or sell any stocks. We create our content based on TIKR Terminal’s investment data and analysts’ estimates. Our analysis might not include recent company news or important updates. TIKR has no position in any of the stocks mentioned. Thank you for reading, and happy investing!
