I've been steadily adding to my position in Realty Income (O 0.62%) over the past few years. I generally buy a few shares every month or so when I have a little extra cash in my retirement account to spare.

However, I recently bought a boatload of shares, boosting my position by more than 40%. Here's why I loaded up on shares of the real estate investment trust (REIT) in my retirement account.

A great value proposition

Realty Income's stock significantly underperformed the market last year. Shares of the diversified REIT declined 7% for the year and fell 17.5% from their high point in October. That decline has the REIT trading at a roughly 6% dividend yield these days, which is well above its sub-5% average over the past 10 years.

That decline came even though the REIT had another solid year. It was on track to grow its adjusted funds from operations (FFO) by 4.8% at the midpoint of its guidance range ($4.17-$4.21 per share), which is in line with its historical median growth rate of about 5% annually. That solid growth rate comes amid the challenges of higher interest rates, which have increased the REIT's cost of capital, making it more expensive to externally fund new acquisitions by issuing more stock and debt.

With its earnings rising and its share price falling, Realty Income has gotten cheaper over the past year. At its recent price of around $53 per share, it trades at about 12.6 times its adjusted FFO. That's dirt cheap, compared to the broader market, which sells for closer to 25 times earnings after last year's rally. While Realty Income is growing slower, it should still trade at a higher valuation multiple, given the durability of its business.

Dual upside catalysts

Higher interest rates are the primary reason shares of Realty Income slumped last year. While the Federal Reserve finally started cutting the federal funds rate toward the end of the year, market interest rates (e.g., mortgage rates and the 10-year treasury) rose.

Several factors caused this disconnect, including persistently high inflation levels, the high U.S. Federal budget deficit, and a strong economy. Those issues caused the Fed to taper its rate-cut expectations for 2025.

However, there has been some positive news on the inflation and interest-rate front in early 2025. The core inflation rate has eased a bit, which has taken some of the pressure off bond yields. If those trends continue, it should benefit REITs like Realty Income. Borrowing rates should ease, while the value of commercial real estate should improve, making it easier for Realty Income to complete additional accretive acquisitions funded with external capital.

Despite that potential catalyst, Realty Income isn't banking on market conditions to improve to help reaccelerate its ability to expand. It recently unveiled plans to launch a private capital fund to tap into the massive private real estate market. It will co-invest in the fund, which it will manage on behalf of institutional investors.

This strategy will enable the REIT to earn management-fee income. That additional income stream will significantly enhance its investment returns, making acquisitions even more accretive. As a result, it could grow its adjusted FFO per share faster in the future.

Its new asset management platform should also bolster the company's valuation since asset managers trade at a premium to REITs (24.3 times EV/EBITDA, compared to 16.3x for the average REIT and 15.3x for Realty Income).

High income and high return potential

Realty Income currently trades at an attractive value. It offers a 6%-yielding dividend that should continue its steady rise (the REIT has done a magnificent job increasing its payout, recently delivering its 128th raise since coming public in 1994). On top of that, it offers steady growth that could accelerate from its long-term average of around 5% annually as it ramps up its private fund strategy. That sets me up to earn double-digit total annual returns from here without any valuation increase.

Meanwhile, the company's valuation has ample upside potential due to its fund strategy and the potential for lower rates. This combination of income and upside catalysts is why I recently loaded up on shares and will buy even more if the stock continues to fall. I firmly believe that the REIT will supply a lot of income and upside to help grow the value of my retirement account in the coming years.