Agree Realty (ADC -0.55%) is in the business of developing and leasing net-lease retail properties. As a real estate investment trust (REIT), it's legally bound to pay out at least 90% of its taxable income as dividends to shareholders.
And it's done that very well. As the chart below shows, this Detroit-based trust has seriously smoked Realty Income, the standard-bearer of retail REITs, in total return since the turn of the century. It has even outpaced the greater market as benchmarked here by the Vanguard S&P 500 ETF exchange-traded fund.
ADC Total Return Level data by YCharts
Like Realty Income, Agree pays dividends monthly, and its smaller size may give it more agility to move the needle through acquisitions, which it's been pursuing aggressively. The company invested a record $1.7 billion in 2022 with similar plans for 2023.
And that's without plans to issue new shares of stock this year, instead relying on the war chest of $1.5 billion in liquidity that Agree had at the end of 2022. Also speaking to this company's stability is a low ratio of net debt-to-EBITDA of 4 that it has maintained while growing its portfolio to 1,839 properties in 48 states.
An Agree-able roster of rent-paying retailers
Agree's portfolio focuses on freestanding, net-leased properties, which means that tenants cover such costs as insurance, maintenance, and real estate taxes. It also has grown its collection of ground leases -- collecting rent from the land while leaving the development to the tenant -- to about 12% of its portfolio.
Reliable rent flow comes from all those long-term leases with inflation-resistant, investment-grade tenants like Walmart at 6.9% of Agree's rent flow, followed by Dollar General, Tractor Supply, and Best Buy at just more than 4% each.
Meanwhile, as a sector, grocery stores lead the list, accounting for 9.4% of recession-resistant income for Agree and, by extension, its shareholders.
A powerful producer of passive income
Agree has proven to be a passive income machine since the company went public in 1994. It has provided a compound average annual return of 12.5% over that time, and in the past 10 years alone this trust has grown its payout by an average of 6.1% a year.
The stock also has shown its resilience during the market downturn that began in earnest last year in the face of rapidly rising interest rates, inflation fears, and recession concerns.
Agree stock is currently yielding about 4.3% at a share price of about $67. A payout ratio of 80% based on cash flow helps point to the continued ability of Agree to sustain that dividend payout.
The combination of a diversified portfolio, long-term leases, conservative financial management, and growth prospects positions Agree Realty well to continue providing dividend payouts and positive total returns for years to come.
