The surging market has left some strong companies behind, including in the realm of real estate dividend stocks. Now might be the time to consider adding a couple to the income-focused portion of a growth-and-income portfolio.
Ten years is a good window to keep in mind when looking at long-term buy-and-hold stocks, and there's no time like the present to look for bargains in a bull market just recently born.
Ten years is also a good measure to use as you look back on the past performance of your prospective purchases.
Two real estate investment trusts (REITs) that I've been adding to regularly are retail landlord Agree Realty (ADC -0.48%) and life sciences space specialist Alexandria Real Estate Equities (ARE -0.90%).
ARE Total Return Level data by YCharts
There are more than 200 publicly traded REITs on the U.S. exchanges and as a sector they've largely missed out on the rally sparked by slowing inflation and the prospect of interest rate cuts. REITs, because they typically must finance portfolio growth, are particularly sensitive to interest rates and delays in the expected cuts this year have helped hamper their share price performance.
However, as the chart above shows, Agree and Alexandria have easily outpaced the benchmark Vanguard Real Estate ETF in total return over the past decade.
And while they're both well behind the greater market now, there's ample reason for optimism about their recovery, based on their track record of success focusing on their core businesses.
Don't try this at home
Alexandria is in its 30th year of business as an owner, operator, and developer of collaborative life science, agtech, and advanced technology mega campuses in and around Boston, the San Francisco Bay Area, New York City, San Diego, Seattle, Maryland, and North Carolina's Research Triangle.
The portfolio has grown to about 73 million square feet of occupied space and space under development, including 1.2 million square feet delivered in the fourth quarter alone. Recent highlights include about 800,000 square feet leased in two Boston locations to Moderna and Eli Lilly, and a $300 million investment by AstraZeneca in a cell therapy manufacturing facility in Rockville, Maryland.
Providing specialized lab and support space helps inoculate San Diego-based Alexandria against the fears of permanent vacancies that now infect office REIT investing. The work of Alexandria's clients doesn't lend itself to spare bedrooms or dining room tables.
Recession-resistant retail space
Meanwhile, Agree Realty is a highly regarded retail REIT whose own tenant list largely comprises investment grade, e-commerce resistant, brand-name retailers such as Walmart, Home Depot, Tractor Supply Co., and Kroger.
The suburban Detroit company now has a portfolio of 2,135 properties and 44.2 million square feet in 49 states. Like Alexandria, it is on the grow, leveraging its rock-solid balance sheet for $1.3 billion in 2023 acquisitions and with more than $1 billion in liquidity in place for this year.
ARE Dividends Paid (TTM) data by YCharts
Growing dividends, FFO, and optimism
REITs are required by tax law to pay out at least 90% of their taxable income as dividends, and Agree and Alexandria have both steadily raised their payouts over the past 10 years, as the chart above shows. They also continue to produce growing funds from operations (FFO) to comfortably sustain those dividends.
They're both well off their high-water marks in share price. Agree shares are trading at about $57, down from a 52-week high of $75 and yielding about 5.2%. Alexandria shares, meanwhile, are yielding about 4.3% and are trading at about $119 a share, sharply down from their 52-week high of $162.
Analysts who follow these stocks rate them both as buys. We'll know more when the Fed begins delivering on interest rate reductions, which should give REITs, especially particularly solid ones like these, a boost. Meanwhile, they continue as solid dividend stocks. I'm still confident in them, too, as good buys for a decade or longer.
