If you had plunked $10,000 into an index fund or other investment that tracks the Dow Jones Industrial Average at the onset of the Great Recession and held on ever since, you'd now have a holding worth a cool $39,000 or so.
That's not too shabby. But look at what that same $10,000 would have produced had you instead put it into shares of Agree Realty (ADC 0.51%) -- a real estate investment trust (REIT) that leases to such non-glamorous tenants as supermarkets and home improvement stores.
ADC Total Return Level data by YCharts.
It's the recession-, inflation-, and e-commerce-resistant demand for the products that these tenants offer -- along with the diversification of its real estate portfolio -- that makes Agree Realty such a safe harbor for dividend investors.
A diversified portfolio and solid financials
This retail REIT currently boasts a collection of 1,839 properties spread across the 48 contiguous U.S. states. Three categories -- grocery stores, home improvement, and tire and auto service -- each account for just over 9% of Agree Realty's annual rent, of which two-thirds comes from investment-grade operators. Its largest tenant is Walmart at 6.9% of its rent roll, followed by Tractor Supply, Dollar General, and Best Buy (BBY 1.41%) at just over 4% each.
What also makes this dividend machine so attractive is its steady policy of its investing in its growth, which is supported by a rock-solid balance sheet. It sports a conservative net-debt-to-EBITDA ratio of 4.1 and had approximately $1.5 billion in total liquidity at the end of 2022. That gives it all the dry powder needed to continue its run of retail properties acquisitions. In 2022, the magnitude of those purchases set a company record at $1.59 billion.
A real dividend machine in action
That "dividend machine" description isn't hyperbole. Since it shifted from making its distributions quarterly to monthly in January 2021, Agree Realty has raised its payout four times, including by 5.7% year-over-year when it boosted the payout to $0.240 a share in December. Over a 10-year period, management has hiked the dividend by an average of 6.1% each year.
REITs are legally required to pay at least 90% of their taxable income out annually as dividends. And as the chart below shows, Agree Realty has consistently grown its ability to support these growing dividends over the past 15 years, as reflected by the sharp growth in its funds from operations (FFO) and earnings per share while its payout ratio actually declined.
ADC FFO Per Share (TTM) data by YCharts.
Agree Realty stock also hasn't suffered the same fate in the past year as many. In fact, it's up by about 17% year over year. This well-respected REIT is still trading, however, at a price-to-FFO ratio of 18.3, which isn't bad given its popularity among investors.
Expect more portfolio growth and payout growth
In the capital market activities report the REIT issued in January, CEO Joey Agree didn't provide specific guidance on continued acquisitions, but said "our robust liquidity profile enables us to achieve investment volumes proximate to our 2022 activity while remaining within our targeted leverage range without raising additional equity."
Agree Realty shares are currently trading for about $74, giving them a dividend yield of about 3.9%. Agree Realty is a great example of a buy-and-hold stock, so it's not short-term upside investors should focus on here. It's the continued growth of a well-managed real estate portfolio buttressed by a fortress balance sheet, and an operation that should keep producing a reliable stream of increasing payouts for years to come.
