I bought three stocks this week but wasn't aiming to jump on the go-go growth stock train that the market has been on lately. Instead, these routine purchases added to stakes I already had in a trio of companies that are part of the plodding but reasonably predictable income-focused investment path I've been on for the past several years as retirement loomed and has since arrived.
They are AGNC Investment Corp. (AGNC 0.97%), Agree Realty (ADC -0.48%), and Stag Industrial (STAG -0.17%). All three are real estate investment trusts (REITs), which are obligated to pay out at least 90% of their taxable income yearly. In this case, all three do that monthly instead of quarterly.
Image source: Getty Images.
That steady cash flow nicely complements the Social Security benefits I began drawing when I reached full retirement age. That was the magic number that served as my cue to begin hatching some of those nest eggs I'd been gathering over my working years.
Of course, you don't want to end up with rotten eggs, to stretch the metaphor. These three REITs add sector diversity, long-term steadiness, and even some growth potential to their proven ability to provide a steady flow of monthly income.
A tale of two metrics
AGNC Total Return Level data by YCharts.
The chart above shows what an investment of $1,000 made in each of these stocks in April 2011 (when Stag went public) would be worth today. Total return here assumes reinvestment of dividends. In short, an investment of $3000, put equally into these three stocks, would now be cumulatively worth a little over $13,000.
AGNC is the clear laggard, but check out the chart below. It shows their yields over that same time.
AGNC Dividend Yield data by YCharts.
Here's more on each:
1. AGNC Investment Corp.
AGNC Investment Corp. is a mortgage REIT. Unlike the other two companies, it doesn't invest directly in real estate. Instead, it invests in mortgage-backed residential securities (MBS), primarily packaged and sold by government-sponsored enterprises such as Fannie Mae and Freddie Mac.
In its latest shareholder presentation, AGNC said that $55.9 billion of its $59.3 billion portfolio is in agency MBS pools. That seems like a lot of exposure to one kind of asset, but these are government-backed home mortgages. So far, there doesn't seem to be the same kind of risky bubble of over-extended borrowers that helped fuel the Great Recession of 15 years ago.
AGNC shares currently sell for about $10 a share, and the company's dividend rate of $0.12 a share hasn't changed since March 2020 when it was reduced by 25% from $0.16. That's still good for a yield of more than 14%, and declining interest rates that are expected later this year would reduce AGNC's borrowing costs and increase the value of its existing holdings, setting the stage for what could be a dividend boost.
2. Agree Realty
Agree Realty owns about 2,100 properties in 49 states. This leading retail REIT operates under the net lease model, so tenants are responsible for expenses such as taxes, insurance, and maintenance.
Long-term contracts with a long list of tenants anchored by investment-grade, name-brand retailers help ensure a steady flow of cash. This is now bolstered by a growing number of ground leases that currently account for about 12% of the portfolio.
A ground lease means that Agree owns the land but not the building on it. If the tenant ever defaults, the REIT then gets the building, too. Those tend to be even longer leases, adding to their attractiveness.
Agree has been in business since 1971 and went public in 1994. It began paying monthly dividends in January 2021 and has raised them six times since then.
Shares currently sell for about $62 and yield about 4.8%. A steady stream of acquisitions funded by this venerable REIT's fortress balance sheet should keep the revenue growing and support further dividend growth.
3. Stag Industrial
Stag Industrial was formed shortly before its IPO on April 26, 2011, when it boasted a collection of 91 single-tenant industrial properties in 26 states. Fast forward 13 years, and that's now 568 buildings in 41 states.
This industrial REIT has a prime spot in a hot sector. E-commerce and on-shoring industrial activity is driving demand for its logistics and manufacturing space.
These secular tailwinds should help Stag continue to raise its rents and revenue, along with a monthly payout that it's been boosting regularly each quarter for the past several years. A modest payout ratio of about 58%, based on cash flow, also points to room for higher dividends.
Sticking to the plan
All three of these REITs continue to look like good investments for my own income-focused portfolio, even though they're in different businesses with their own challenges and opportunities. I plan to continue adding to them on a regular basis.
