Passive income is a wonderful thing: The money comes in while you do nothing but own the stock. In this case, that means shares of a stock that pays you in dividends. And not every quarter -- every month.
We're talking here about Agree Realty (ADC 1.38%), a real estate investment trust (REIT) that owns and operates a portfolio that is comprised of 31 million square feet of leasable space in 1,510 properties across 47 states.
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Since going public in 1994, this stock would have turned a $10,000 investment into $270,900. As a REIT, it's obliged to return at least 90% of its taxable income to shareholders in the form of dividends, and Agree Realty does that monthly, which can make it even more agreeable to income investors.
Let's look at the math. As of this writing, Agree stock was trading at $68.25 a share, so $10,000 would get you about 146 shares. The monthly dividend is $0.234 a share, so 146 times that means you'll get roughly $34.16 a month.
Raising the dividend while beating the market
And Agree has just raised its dividend by about 3.1%, the third hike since the company began paying dividends monthly instead of quarterly in January 2021. That makes the current yield about 4.1%. Also, this is an operation that's outperformed the S&P 500 both in the long run and the short term.
Year to date, Agree stock is down only about 4% while the S&P 500 is off about 15%. As the chart below shows, Agree has smoked the market in total returns over the past 10 years.
ADC total return level. Data by YCharts.
What's going on here, and will it continue?
Like most of the market, Agree stock tanked in the first months of the pandemic in 2020 but quickly recovered, and there's reason to believe its recovery from this latest hit will also follow soon, especially since its stock fell so much less than the greater market and some of its fellow retail REITs.
Realty Income (O 1.56%), for example, is off about 7% year to date, and National Retail Properties (NNN 0.23%) is off about 16%. That outperformance by Agree extends to the REIT sector in general. Vanguard Real Estate Index Fund ETF (VNQ 0.39%), an exchange-traded fund that includes about 160 different REITs, is down about 17% year to date.
The fact that the market has punished Agree so much less than other retail landlords is probably a result of both that long-term performance and its current prospects. In its first-quarter report, the company said it grew funds from operations (FFO) per share by 15.5% and its dividend by 7.8% year over year.
That was while investing about $430 million in 124 more retail net-lease properties, adding to a portfolio that's 99.6% occupied, with two-thirds of the rent coming from big-name, investment-grade tenants. Plus, management raised its guidance for 2022 acquisition volume to a range of $1.4 billion to $1.6 billion from the previous guidance range of $1.1 billion to $1.3 billion.
Actively enjoying an injection of passive income each month
Real estate investing is a proven way to effectively diversify a portfolio by adding assets that move differently than other parts of the stock market, and because they can often respond to inflation more effectively than many other equities by simply raising the rent, especially as leases renew.
That helps make real estate stocks like Agree a particularly attractive source of passive income in these trying times, and a good choice for buying and holding on to for years to come. Agree's growing portfolio of properties -- which houses retailers dominated by big names like Walmart, Tractor Supply, and Kroger -- just adds to the stability of this particular equity. And getting paid monthly for your stake in this stock doesn't hurt, either.
