Realty Income Corporation’s (NYSE:O) Insiders Have Sold Shares – Should You?

Realty Income, The Monthly Dividend Company is an S&P 500 company dedicated to providing stockholders with dependable monthly income. Realty Income’s insiders have divested from 89.07k shares in the large-cap stock within the past three months. Generally, insiders selling shares in their own firm sends a bearish signal. A two-decade research published in The MIT Press (1998) showed that stocks following insider selling declined 2.7% relative to the market. However, it may not be sufficient to base your investment decision merely on these signals. I’ve assessed two potential reasons behind the insiders’ latest motivation to sell their shares.

Check out our latest analysis for Realty Income

Which Insiders Are Selling?

NYSE:O Insider Trading August 30th 18
NYSE:O Insider Trading August 30th 18

There were more Realty Income insiders that have sold shares than those that have bought. In total, individual insiders own less than one million shares in the business, or around 0.26% of total shares outstanding.

Insiders that have recently sold some of their shares are:
Name Management Board Total Annual Compensation
A. Chapman US$10.0m
Gregory McLaughlin US$4.7m
John Case US$3.0m
Michael Pfeiffer US$2.2m
Paul Meurer US$257.8k
Sumit Roy US$244.3k

Is This Consistent With Future Growth?

NYSE:O Future Profit August 30th 18
NYSE:O Future Profit August 30th 18

Analysts’ expectations for earnings over the next 3 years of 17.1% provides a satisfactory outlook for the company. However this is inconsistent with the signal company insiders are sending with their net selling activity. Digging deeper into the line items, analysts anticipate a rather subdued top-line growth over the next year, but a strong double-digit earnings growth of 16.9%. This may mean the company’s cost-cutting initiative will be significant enough to boost earnings. However, this exercise may not be viable over the long run which may prompt insiders to reconsider their shareholdings. Or else they may view the market has overvalued the stock, presenting a favourable environment to sell.

Did Insiders Sell On Share Price Volatility?

An alternative reason for recent trades could be insiders taking advantage of the share price volatility. A correlation could mean directors are trading on market inefficiencies based on their belief of the company’s intrinsic value. Within the past three months, Realty Income’s share price traded at a high of $59.07 and a low of $52.28. This indicates an immaterial change in share price, with a movement of 12.99%. Potentially, insider transactions are not share price related but may be due to their belief on what will happen to the company in the future or simply just personal cash and diversification needs.

Next Steps:

Realty Income’s insiders’ meaningful divestments tells us that their shares have recently fallen out of favour, though the positive growth in expected earnings tells us a different story, and the share price has not moved significantly to warrant reassessment of mispricing. But we must also be aware that insiders divesting may not actually be based their views on the company’s outlook. Moreover, while insider selling can be a useful prompt, following the lead of an insider, however, will never replace diligent research. I’ve put together two important aspects you should further research:

  1. Financial Health: Does Realty Income have a healthy balance sheet? Take a look at our free balance sheet analysis with six simple checks on key factors like leverage and risk.
  2. Other High Quality Alternatives : Are there other high quality stocks you could be holding instead of Realty Income? Explore our interactive list of high quality stocks to get an idea of what else is out there you may be missing!

NB: Figures in this article are calculated using data from the last twelve months, which refer to the 12-month period ending on the last date of the month the financial statement is dated. This may not be consistent with full year annual report figures.

To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.

The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at editorial-team@simplywallst.com.