Realty Income and BAT Offer the Same Yield, but Different Risks

Realty Income and British American Tobacco offered nearly identical 6.1% dividend yields in the source comparison, but the businesses supporting those payments could hardly be more different. One owns a vast portfolio of leased properties. The other depends on cigarette cash flow while trying to build newer nicotine categories.

Realty Income's advantage is consistency. Its adjusted funds from operations payout ratio was 75% in 2025, down from 83% in 2016. Management raised 2026 AFFO guidance to $4.44 to $4.45 per share after investing $2.6 billion in the second quarter at a 7.3% initial cash yield. That leaves a visible spread between property returns and the dividend, although future growth still depends on access to debt and equity markets.

BAT has the lighter balance-sheet burden in the comparison. The source put adjusted net debt at 2.88 times EBITDA, versus 5.74 times for Realty Income. Yet BAT's dividend coverage has been less stable. Dividends consumed 91% of free cash flow in 2025 before easing to about 78% over the 12 months through June 2026, based on £5.32 billion of dividends and £6.85 billion of free cash flow.

The risks also differ. Realty Income is exposed to refinancing costs, acquisition pricing and tenant health. BAT faces regulation, cigarette volume decline and foreign-exchange movements for U.S. holders of its sterling dividend. Its New Categories products can support growth, but they do not remove the dependence on combustible tobacco cash flow.

The decision therefore turns on the source of risk rather than the headline yield. Realty Income provides the more predictable coverage record, while BAT offers lower leverage and potentially more cash-flow upside if new products scale. Investors should watch Realty Income's investment spreads and leverage, and BAT's 2026 cash conversion and cigarette volumes, before treating either 6% yield as bond-like income.