Watching dividends roll into your brokerage account is a nice feeling. The income you collect can help pay your bills or cover fun expenses, such as trips.
There's just one problem: Most stocks pay dividends quarterly, which makes budgeting hard. Realty Income (O +0.69%) and Agree Realty (ADC 0.11%) pay you monthly. The best part, however, is that both are very attractive businesses. Here's why these two monthly dividend payers might be the right budget-friendly investments for you.
What is a net lease REIT?
Realty Income and Agree Realty are both landlords. From a top-level view, their business models are fairly easy to understand. In fact, you would be doing roughly the same thing if you owned a rental property, just on a smaller scale. The key distinction here is that both of these real estate investment trusts (REITs) are focused on single-tenant net lease properties.
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A net lease requires the tenant to pay for most property-level operating costs. Each individual property is high risk, since there's only one tenant. However, across a large portfolio, the net-lease approach is relatively low-risk since it allows the REITs to avoid the upkeep (both in terms of cost and labor) of the assets they own. Agree Realty owns 2,600 properties, and Realty Income's portfolio contains more than 15,000.
The size difference here is significant, and it manifests itself in other ways as well. For example, Realty Income's market cap is a huge $52 billion. Agree's market cap is a much smaller $8 billion. Both are large and important businesses, but Realty Income is the bellwether name in the net lease industry.
Growth versus diversification
Both REITs pay monthly dividends, and you could comfortably own them in the same portfolio. However, they aren't interchangeable investments despite their similar business models. You might prefer one over the other. There are two big factors to consider: growth and diversification.
NYSE: ADC
Key Data Points
Agree Realty's smaller size makes it easier for the REIT to grow. It's simple math: Add 100 properties to Agree's portfolio, and it has grown by nearly 4%; add 100 properties to Realty Income's portfolio, and the change is just 0.6%.
It is way easier for Agree to move the needle on the top and bottom lines. That shows up in the dividend growth rate. Over the past decade, its dividend has grown at an annualized rate of around 6%. Realty Income's has grown at about half that rate.
That growth difference is highlighted by the different dividend yields. Agree Realty's yield is 4.2% today, while Realty Income's is a much higher 5.6%. If you are looking for dividend growth, Agree will be the better choice even though you are paying a premium valuation for that growth.
NYSE: O
Key Data Points
Realty Income's size, however, does come with some benefits. For example, the company has easy access to the capital markets to fund its growth. It also sees most material investment opportunities -- if not all -- in the net lease niche. From a big-picture perspective, meanwhile, the larger size of the REIT's portfolio has created a more diverse business, which may be of interest to conservative investors.
While Agree Realty is 100% focused on U.S. properties in the retail sector, Realty Income's portfolio spans the retail, warehouse, and industrial sectors, with some unique properties (casinos and vineyards, for example) thrown in for good measure. The portfolio also includes both U.S. and European properties, providing geographic diversification.
Realty Income is one of the most diversified REITs you can buy. It is a slow and steady tortoise, but that's how it has amassed three decades' worth of dividend increases (for reference, Agree's streak is "only" around a decade long).
One, the other, or both
As noted, you may find that you like these monthly payers enough to buy them both. However, the growth opportunity presented by Agree Realty might give it the edge for some investors. But the higher yield and added diversification offered by Realty Income could be important factors for conservative investors. Whatever choice you make, these monthly-paying REITs are both well run, and they will make it much easier for dividend lovers to create their monthly budgets.
