Agree Realty (ADC 0.33%) is not a household name but many of its tenants are, and they're a big reason this real estate investment trust (REIT) has been such a strong performer for so many years.
Agree boasts a collection of 1,839 net-lease properties comprising 38 million square feet of space with a presence in every state except Hawaii and Alaska. In a net lease, the tenant picks up the tab for property taxes, insurance, and maintenance, making the path to profitability that much simpler for the property owner.
Since February 2008, near the the dawn of the Great Recession, Agree Realty has outpaced the greater market -- as represented below by the Vanguard S&P 500 ETF -- by about 20% in total return. Note that in terms of price alone, Agree has lagged that benchmark by nearly 40%. That speaks to the impact of dividends on total return, and these charts show what that looks like in terms of a $1,000 investment, which now would be worth $5,584:
A recession-resistant roster topped by retail stalwarts
Agree has been a public company for nearly 30 years, but I chose 2008 since that's well enough time to speak about a long-term investment and it's a good measure of how Agree's management has assembled a portfolio of high-performing properties. Occupied by reliable rent-payers, they include companies that themselves are particularly resistant to economic convulsions.
Walmart tops the list of Agree's 209 tenants, providing 6.9% of the REIT's annualized base rent as of the end of 2022, with Tractor Supply and Dollar General close behind at 4.5% and 4.4%, respectively. The top 10 also includes TJX Cos., Best Buy, Kroger, CVS Health, and O'Reilly Auto Parts.
Along with geographic diversity, there's sector diversity, too. Three industries -- grocery stores, home improvement, and tire and auto service -- account for just a little more than 9% each of the rent roll. General merchandise, dollar stores and off-price retail, auto parts, farm and rural supply, and consumer electronics fill out the top 10.
Investing in more properties means more income
That portfolio also is growing quickly. The company has invested $7.3 billion in net-lease properties since 2010, including about $5 billion in the past three years. It's accomplished this by leveraging its rock-solid credit, ample liquidity, and well-managed debt load to take advantage of record-low interest rates.
Of course, interest rates have jumped. REITs don't typically retain that much cash, since they have to pay at least 90% of their taxable income out as dividends. So borrowing costs can loom large even for operations with the kind of fortress balance sheet that Agree boasts.
The company hasn't issued an estimate of how much it expects to spend in 2023 but Chief Executive Officer Joey Agree said to expect "investment values proximate to our 2022 activity" without having to raise equity, which typically takes the form of stock issues that can dilute the value of current shares outstanding.
Growing that $1,000 stake and its monthly payouts alike
Agree has proven itself as a total return machine since its 1994 initial public offering, providing compound annual growth of 12.5% over that time and 6.1% annualized dividend growth over the past 10 years. That includes four small jumps just in the two years since Agree began paying monthly instead of quarterly in January 2021.
Agree stock currently yields about 4% at a price of about $73 per share. It has weathered the bear market admirably, up by about 14% year over year as investors continue to give this dividend stalwart its due. That might seem as if it should limit its upside in a bull market. Then again, this is a buy-and-hold candidate that appeals to income investors interested in continuing to grow that $1,000 stake.
