There's nothing better than collecting a paycheck without having to actively work for it. The power and ease of passive income are why dividend stocks are one of my favorite avenues for investing.
Real estate investment trusts (REITs) are particularly attractive dividend investments, because they offer diversification in the real estate industry with attractive dividend yields that usually grow over time. And while many dividend stocks are tanking right now, Agree Realty (ADC 1.41%) is soaring. Up 11% this year, here's a closer look at this top-notch dividend stock and why you may want to consider investing.
A leading net-lease REIT
Agree Realty is a net-lease REIT that acquires, develops, and leases over 1,600 retail properties across 48 states. Its diverse tenant base includes institutional-quality tenants like Home Depot, Walmart, Costco, Dollar General, and Tractor Supply, along with hundreds of other national and regional retailers across 15-plus different industries. The company also has a small but growing ground lease business, which accounts for around 13% of its annual base rents (ABR).
The retail industry has certainly faced a number of headwinds with the rise of e-commerce and the impact on in-store shopping during the pandemic, but that hasn't seemed to phase Agree Realty. As of Q2 2022, 99.6% of its net-lease portfolio was leased, and its ground-lease portfolio was 100% leased and occupied.
It spent $40 million in acquisitions and developments in 2021, and is on track to spend $75 million to $125 million this year. In the first six-months of the year, Agree Realty grew its adjusted funds from operations (AFFO), an important metric for REITs, by 13% year over year. Net operating income (NOI) also rose close to 14%.
Income > growth
Double-digit growth like it's seeing today isn't necessarily the norm for the company -- net income and AFFO growth in the range of 3% to 6% are more in its historical range. But that's not necessarily a bad thing. In many ways, it's actually an advantage. Slow but steady growth coupled with reliable income is highly underrated. And that's exactly why this stock is soaring.
More and more investors are seeing the value in its reliability, especially since it pays its dividends monthly and has a super attractive dividend yield of 3.4% right now -- over two times that of the S&P 500. Its payout ratio is 72%, and its debt ratio is five times its earnings before interest, taxes, income, and depreciation (EBITDA), meaning it's in a relatively healthy position to maintain its debt obligations and dividend payments in the future.
It's not that Agree Realty won't grow in the future -- quite the contrary -- the REIT is actively ramping up its investment activity, which will undoubtedly grow its earnings in the coming years. It is simply that the value in the stock today is the passive income it can provide investors.
It has an outstanding track record of dividend increases, having bumped its dividend 17 times since 2011, and despite its somewhat lackluster growth at times, it has still managed to outperform the S&P 500 over the past 10 years, providing a roughly-13% return compared to around 10% with the S&P.
