The holidays are near, and it's a good time to buy equities you think will help you meet your financial goals for years to come. I'm not talking about go-go growth stocks. Let's look at something more prosaic: real estate stocks that pay you dividends while you let others manage the properties.
Real estate investment trusts (REITs) are just that kind of passive-income machine. They have a long record of providing solid total returns, while joining bonds as popular choices for conservative investments in long-term portfolios.
A diverse trio for dependable dividends
I own two dozen REITs, and three of my favorites right now are Agree Realty (ADC 1.16%), Getty Realty (GTY 0.77%), and Gladstone Commercial (GOOD 1.29%). Agree focuses on retail properties, especially big box stores, while Getty leases to auto-related businesses such as gas stations and parts stores. Gladstone owns a mix of industrial and office properties.
Each of these REITs has its own proven strategy that makes it an attractive investment. Agree, for instance, has kept its properties nearly 100% occupied during a tough time for brick-and-mortar general retail and is growing its portfolio -- and income -- at a record pace.
Getty, meanwhile, is in a particularly recession-proof and inflation-resistant niche. People are going to keep buying gas, and its mix of sales-leaseback arrangements, developing new properties, and redevelopments gives it the flexibility to take advantage of opportunities when it sees them.
And Gladstone is part of a group of REITs chaired by David Gladstone, who manages his holdings with an eye toward providing retirement income, steadily, and on a monthly basis. Gladstone Commercial, for its part, is focusing on industrial properties over the struggling office space business. The CEO said recently that all 15 of its prospective acquisitions were in that hot sector.
Gladstone has been paying dividends monthly since shortly after its 2003 initial public offering, while Agree began paying monthly last year, and Getty still pays quarterly. The chart below shows how these three trusts have fared against the benchmark Vanguard Real Estate ETF in total return over the past 10 years.
ADC Total Return Level data by YCharts.
Dividends make up a big part of that total return. REITs, after all, are required by tax law to pay out at least 90% of their taxable income to shareholders. The chart below shows the steady dividend yield each of these REITs has provided to shareholders over the same 10-year period.
ADC Dividend Yield data by YCharts.
Meanwhile, as you can see below, each company -- especially Agree -- has steadily grown its funds from operations (FFO, a key measure of a REIT's earnings). Their payout ratios are at levels that should be able to support more dividend growth and acquisitions for their portfolios. Currently, based on cashflow, they're at 82% for Agree, 80% for Gladstone, and 70% for Getty.
ADC Funds from Operations (TTM) data by YCharts.
As for growth, just in the past quarter, Agree added 121 net-lease properties, to give it a portfolio of just more than 1,700 locations in all 48 contiguous states. Getty invested in 10 properties in 3Q22 and has 1,021 in 38 states. Gladstone has 136 properties spread across 27 states, adding four industrial properties and selling three office properties in the third quarter.
Priced attractively for a November buy and hold
They also may be selling at bargain prices right now. Of the three, Agree has the highest multiple of share price to FFO per share, a reasonable 17, while Getty is at about 11 times and Gladstone is at about 10. That's after all three of them participated in the overall market rally of late.
In the past month, for instance, Agree shares jumped by about 9.5%, Getty by about 17.3%, and Gladstone by nearly 19%. But they're still down for the year: Agree by about 6%, Getty by about 1%, and Gladstone by a comparatively whopping 28%.
Each has the balance sheet and a penchant for payouts that make me confident that I'll give thanks for giving them a place in my own investment portfolio for years to come.
