Real Estate Investment Trusts (REIT) make excellent dividend stocks because they usually offer high yields and reliability. There are various kinds of REITs that focus on specific industries, and some are riskier than others. Agree Realty (ADC -1.91%) is a retail REIT that has the bonus of paying its dividend monthly. Is it safe to add it to your portfolio?
Another monthly dividend stock
Agree has many similarities with the well-known REIT Realty Income. They are both retail REITs that pay a high-yielding dividend monthly, and each brings something different to the table. Realty Income is much bigger and more diverse, which could mean it's more stable and reliable.
But it's precisely the smaller size that could make Agree look more competitive because it has more room to grow. As a smaller company, any increase will look larger on a smaller base. And it has plenty of growth opportunities.
Despite high interest rates, it has identified attractive properties to buy. However, it's toned down purchases while rates remain high. It purchased $124 million of what it calls " high-quality retail net lease assets" in the 2024 first quarter, and it has a goal of acquiring $600 billion worth of properties for the full year.
Image source: Agree Realty.
Strong financial position
Agree has a fortress balance sheet with $920 million in liquidity and low leverage. Its net debt to recurring earnings before interest, taxes, depreciation, and amortization is a low 4.3, and average payout ratio of 76% of adjusted funds from operations (AFFO). That's a comfortable ratio for reliable payments.
Despite macroeconomic pressure and a decline in earnings per share in the first quarter, AFFO increased 4.6% year over year. AFFO is the basic profitability metric for REITs. It measures profits from core operations and excludes the gains or losses on sales that impact net income.
A diverse client base
While Realty Income has entered many non-retail sectors, which could be good for diversity, Agree sticks to retail tenants that mostly sell essentials and are reliable even in economic downturns and high interest rate environments. It has plenty of diversity in its client base, though, which creates its own stability.
It owns more than 2,100 properties in 49 states, and its top three tenants are Walmart, Tractor Supply, and Dollar General. However, no tenant accounts for more than 6% of the total portfolio. Grocery stores represent 9.7% of all poerpties, with home improvement at 8.7%.
Agree stresses its forward-thinking development approach that targets companies with compelling growth prosepdcts. It has a strong focus on tenants with omnichannel strategies and are recession resistant such as Home Depot, TJX Companies, and Costco Wholesale.
A growing and high-yielding dividend
Agree has paid 147 consecutive dividends.
Its stock is slightly down this year at 6%, and at current levels, its dividend yields 5%. That's around where it usually falls out, and it's more than 3 times the average S&P 500 yield.
Agree switched to a monthly dividend schedule in 2021 that represented a 6% increase over the previous annualized dividend total.
Agree offers a steady, reliable, and growing dividend. It operates a resilient business and takes a creative approach to development, and it's like a good candidate as a REIT or dividend stock to add to a retail investment portfolio.
