There are many ways to begin collecting passive income. One of the easiest is to invest money into real estate investment trusts (REITs), entities that Congress created in 1960 to allow anyone to invest in income-producing commercial real estate. While most REITs pay dividends, enabling their shareholders to collect passive income, some are better suited for income production than others.

One REIT made for those seeking passive income is Agree Realty (ADC 1.31%). Here's what makes it an excellent option.

Made for income seekers

In January 2021, Agree Realty joined a handful of companies paying a monthly dividend instead of following the traditional quarterly schedule. That makes it even more suited for making passive income because it better aligns income frequency with expenses. 

Another factor that makes Agree Realty great for income production is its dividend yield. At the current share price and dividend payment, Agree Realty yields 3.9%. That's above the REIT sector's 3% average and the S&P 500's 1.5% dividend yield. This dividend yield implies that every $1,000 invested in Agree Realty will generate about $39 of annual passive income.

Agree Realty also has a long history of growing its dividend payment. The REIT has increased it by 7.8% over the past year. Meanwhile, the payout has grown at a 5.5% compound annualized rate over the past decade. 

What makes Agree Realty a great income stock?

Agree Realty has built a durable portfolio of income-producing freestanding retail properties to support its monthly dividend. The REIT focuses on three factors that enable its portfolio to produce very stable rental income:

  • Resilient industries: Agree Realty concentrates on owning properties leased to retail businesses resistant to disruption from e-commerce and recessions. Its top tenants are grocery stores, home improvement stores, dollar stores, convenience stores, and auto service and parts retailers.
  • High-quality tenants: The REIT focuses on leasing properties to retailers with investment-grade credit ratings (67.8% currently have that distinction). This designation means they should have the financial strength to meet their financial obligations if economic conditions deteriorate.
  • Stable lease structures: The REIT utilizes two lease structures: Triple net (NNN) and ground leases. NNN leases make the tenant responsible for covering maintenance, building insurance, and real estate taxes, while ground leases are on the land under a building.

This investment strategy enables the REIT to generate very stable rental income in almost any market environment. That helps put the dividend on a solid foundation. 

Meanwhile, Agree Realty has a very conservative financial profile. The REIT pays out only about 70% of its core funds from operations (FFO) in dividends. That leaves it with a comfortable cushion while enabling it to retain cash to acquire additional income-producing properties. Agree Realty also has a strong investment-grade balance sheet. That allows it to borrow money at lower costs to fund acquisitions. 

Finally, the REIT has lots of growth still ahead. Its existing leases all feature annual contractual rate escalations, providing the company with steady rent growth. Meanwhile, it expects to acquire $1.4 billion to $1.6 billion of income-producing retail properties this year. That's an increase from last year's tally of $1.39 billion. The company also funds new developments. Agree Realty currently has 18 projects under way, which will cost $53 million. Those three growth drivers will provide Agree Realty with steadily rising income, enabling the REIT to continue increasing its monthly dividend in the future.

An ideal passive-income producer

Agree Realty has a lot of great features. The REIT pays a monthly dividend with an above-average yield, backed by high-quality income-producing real estate and a top-notch financial profile. That gives it the financial flexibility to continue growing its portfolio and payout. These features make Agree Realty a great option for those seeking to start collecting some passive income.