Real estate investment trusts (REITs) make excellent dividend stocks because they usually offer high yields and reliability. There are various kinds of REITs that focus on specific industries, and some are riskier than others. Agree Realty (ADC +1.23%) is a retail REIT that has the bonus of paying its dividend monthly. Is it safe to add it to your portfolio?
Another monthly dividend stock
Agree has many similarities with the well-known REIT Realty Income. They are both retail REITs that pay a high-yielding dividend monthly, and each brings something different to the table. Realty Income is much bigger and more diverse, which could mean it's more stable and reliable.
But it's precisely the smaller size that could make Agree look more competitive due to growth opportunities. It's a smaller company, and any additions to the portfolio will look larger on a smaller base. And it has plenty of growth opportunities.
Despite high interest rates, it has identified attractive properties to buy. However, it's toned down purchases while rates remain high. It purchased $124 million of what it calls "high-quality retail net lease assets" in the 2024 first quarter, and it has a goal of acquiring $600 million worth of properties for the full year.
Image source: Agree Realty.
Strong financial position
Agree has a fortress balance sheet with $920 million in liquidity and low leverage. Its net debt to recurring earnings before interest, taxes, depreciation, and amortization (EBITDA) is a low 4.3, and it has an average payout ratio of 76% of adjusted funds from operations (AFFO). That's a comfortable ratio for reliable payments.
Despite macroeconomic pressure and a decline in earnings per share in the first quarter, AFFO per share increased 4.6% year over year. AFFO is the basic profitability metric for REITs. It measures profits from core operations and excludes the gains or losses on sales that affect net income.
A diverse client base
While Realty Income has entered many non-retail sectors and global markets, which could be good for diversity, Agree sticks to U.S. retail tenants that mostly sell essentials and are reliable even in economic downturns and high-interest-rate environments. It has plenty of diversity in its client base, though, which creates its own stability.
It owns more than 2,100 properties in 49 states, and its top three tenants are Walmart, Tractor Supply, and Dollar General. However, no tenant accounts for more than 6% of the total portfolio. Grocery stores represent 9.7% of all properties, with home improvement at 8.7%.
Agree stresses its forward-thinking development approach that targets companies with compelling growth prospects. It has a strong focus on tenants that have omnichannel strategies and are recession-resistant, such as Home Depot, TJX Companies, and Costco Wholesale.
A growing and high-yielding dividend
Agree has paid 147 consecutive dividends. Its stock is slightly down this year at 6%, and at current levels, its dividend yields 5%. That's around where it usually falls out, and it's more than three times the average S&P 500 yield.
NYSE: ADC
Key Data Points
Agree switched to a monthly dividend schedule in 2021 that represented a 6% increase over the previous annualized dividend total.
Agree offers a steady, reliable, and growing dividend. It operates a resilient business and takes a creative approach to development, and it looks like a strong candidate as a REIT or dividend stock to add to a retail investment portfolio.
