When Agree Realty (ADC -0.27%) raised its dividend this month, it marked the fifth such boost since this passive income machine began paying by the month in January 2021.
While it was only a 1.3% bump, it just adds to the appeal of this real estate investment trust (REIT) as a long-term buy and hold for reliable, market-beating performance.
Real estate developer Richard Agree launched his company in 1971 and, after developing more than 40 shopping centers across the Midwest and Southeast, took it public in 1994. Since then, it's grown its portfolio to more than 1,800 properties in 48 states. The chart below shows how much Agree shares have outperformed the Dow Jones Industrial Average in total return over that time.
ADC Total Return Level data by YCharts. IPO = initial public offering.
A trifecta that adds up to one promising real estate play
Agree Realty is on solid ground for more solid returns for years to come, relying on a trifecta of an investment-grade fortress balance sheet (4.0 net debt to EBITDA -- earnings before interest, taxes, depreciation, and amortization -- ratio); about $1.5 billion in current liquidity to keep adding more income-producing, net-lease properties; and a long list of tenants that is two-thirds investment-grade and includes many of the country's largest recession- and e-commerce-resistant retailers.
Walmart is Agree's largest single rent-payer (providing nearly 7% of its rental flow), with the top 20 providing about 58% of the total. By sector, grocery stores, home improvement, and tire and auto services each provide about 9% of the total. And those non-publicly traded major tenants, by the way, include such stable operators as Publix.
Speaking of solid ground, the company's diverse approach to growing its portfolio includes a growing commitment to ground leases, where the tenant takes on the costs of developing the buildings while Agree enjoys the income from a long-term lease. That now accounts for about 12% of the company's rent flow. It also had 31 development projects underway on its own going into this year and had plans to continue selected acquisitions after spending a record $1.7 billion to pick up 465 properties in 2022.
A respectable yield helps point to an attractive buy
Agree stock is currently yielding a respectable 4.3% at a share price of about $66, down about 7% year over year. And, as this chart shows, the company has pushed its total return level into negative territory over that span, too, underperforming the Dow for the moment.
ADC Total Return Level data by YCharts.
That may well be a temporary blip of underperformance and doesn't diminish Agree's appeal as a reliable dividend stock for people interested in income as much as growth. Take a look at its funds from operations (FFO), a critical measure of how a REIT generates and uses cash, roughly equivalent to earnings per share for other equities.
This chart shows how nicely both FFO and dividends have grown since Agree began paying monthly.
ADC FFO Per Share (TTM) data by YCharts. FFO = funds from operations. TTM = trailing 12 months.
Agree's current payout ratio based on cash flow is about 80%, which is not particularly high but bears watching. And its price/FFO ratio of about 16 also points to shares not being particularly cheap.
But this is a sound, solid company that's long been popular on the Big Board, and its share price reflects that. It's reasonable to expect that value to continue and for the dividend payments to continue rising. Analysts' consensus gives it a target price of $78.23, which would be a nice jump from current levels, and they rate it a "moderate buy." That seems reasonable. I own ADC shares and plan to add to my stake regularly, too.
