Agree Realty (ADC +0.20%) has a lot to offer income-seeking investors. The real estate investment trust (REIT) currently has a more than 4% dividend yield, putting it several times higher than the S&P 500's 1.3% yield. Investors get that income more frequently than other dividend stocks since Agree Realty makes monthly payments instead of quarterly ones. On top of all that, the retail property owner has a strong record of increasing its payment, with a 5.7% compound annual dividend growth rate over the past decade.
The REIT is in an excellent position to continue growing in the future, which was evident in its recently reported second-quarter results. It remains a phenomenal option for those seeking to generate passive income from real estate.
NYSE: ADC
Key Data Points
Growing stronger
Agree Realty has continued its steady growth this year. The retail REIT's adjusted funds from operations (FFO) rose 6.4% in the second quarter to $1.04 per share. That boosted its first-half total to $2.07 per share, a 5.5% increase compared to the year-ago period. The REIT benefited from its continued investment in expanding its portfolio. It invested $343 million in 102 retail net lease properties this year, including $203 million to buy 70 properties in the second quarter.
That growing earnings enabled the REIT to increase its monthly dividend by 2.9% over the past year. With its adjusted FFO growing faster than the dividend, Agree Realty's dividend payout ratio is down to an even more comfortable 72%. That conservative level enables it to retain a meaningful percentage of its cash flow to fund new investments.
Agree Realty also continues to boast of having a very strong balance sheet. It sold 3.2 million shares in the second quarter, raising $195 million in cash. That enabled it to end the period with a low 4.1 times leverage ratio. The REIT now has $1.7 billion of liquidity after closing a new credit facility, which expanded the capacity to $1.25 billion and extended the maturity until 2029. That gives it lots of flexibility to continue investing in income-producing retail properties.
More growth ahead
Agree Realty's strong first half and healthy financial profile put it in an excellent position to continue growing. It raised $650 million of additional capital in the first half of the year to bolster its balance sheet and liquidity. That gives it a bigger war chest to accelerate its investment activity. The REIT now expects to make $700 million in acquisitions this year, up from its initial guidance of $600 million. That's in addition to the $101 million it has committed to invest across 25 development projects.
The REIT now expects its full-year adjusted FFO per share to be between $4.11 and $4.14. That's up from its prior guidance range of $4.10-$4.13 per share and implies 4.4% growth at the new midpoint. That's a lot faster than its initial base case of a more than 3% rise in its adjusted FFO this year.
Agree Realty should be able to continue growing in the future. Its conservative dividend payout ratio and ample liquidity give it lots of financial flexibility to capitalize on new investment opportunities. They should be abundant because of the company's partnerships with growing retailers, many of which still own most of their real estate. Its existing tenants own over 166,000 properties that the REIT could acquire in sale-leaseback transactions. That's a long growth runway for a company that currently owns over 2,200 properties.
The payout should continue rising
Agree Realty has grown its high-yielding dividend at a healthy rate over the past decade. That seems likely to continue. The REIT has bolstered its liquidity this year, which will enable it to accelerate its investment activity and earnings growth. With a long growth runway ahead, Agree Realty remains an excellent option for those seeking an attractive monthly income stream that should steadily rise in the future.
