Realty Income (O 0.24%) has become a poster child for reliable dividend-paying stocks. With more than 117 dividend increases and 631 consecutive monthly dividend payments, its track record is hard to beat.
While I love having this real estate investment trust (REIT) in my portfolio, I'm constantly on the hunt for other stocks that mimic its income-generating abilities. This is why I was happy when I found out about Agree Realty (ADC -0.55%).
Agree Realty is a net lease real estate investment trust REIT not unlike Realty Income, and it too has a strong history of dividend growth. If you like Realty Income, here's why you may like Agree Realty as well.
The lowdown on Agree Realty
On the surface, Agree Realty has a lot of similarities with Realty Income. Both companies earn reliable income from long-term net leases, both went public in 1994, and both pay dividends monthly. But there are some key differences between the two.
Agree Realty primarily leases retail properties to investment-grade tenants such as Walmart, Dollar General, Home Depot, and Tractor Supply. At the end of 2022, it had interest or ownership in roughly 1,800 properties in 48 states. That's a much smaller portfolio than Realty Income's, which encompasses 11,700 properties.
But the REIT also has a growing portfolio of ground leases. A ground lease secures the land, giving a tenant the right to develop commercial property. These leases are considered even more secure than a lease because they typically supersede any other financing related to the property. In total, around 12% of its annual income is derived from ground leases.
Why you should love Agree Realty
The net lease concept is a time-tested business model that has consistently proven its resiliency through economic ups and downs. At the start of the pandemic, investors grew worried about the impact that crisis would have on the brick-and-mortar retail industry. Agree Realty definitely felt some impacts initially. However, its business has rebounded and is now even stronger than it was three years ago.
As of its latest earnings report -- for the third quarter of 2022 -- Agree's occupancy was just shy of 100%. This is incredibly high in the real estate industry and a testament to the demand for its high-quality properties. Its key metrics, including net operating income, revenue, and funds from operations (FFO) were all up year over year for the first nine months of 2022.
The company is also growing like crazy. In 2022, it spent a record $1.71 billion on new acquisitions and developments. This was also twice as much as it spent on growing its portfolio in 2019. And management plans to maintain that rapid momentum in 2023.
The best part is that the REIT is funding this growth without compromising its financial position. Its dividend remains well-covered by its FFO with a payout ratio of 76%, and its debt exposure remains low. The company boasts a below-average debt-to-EBITDA (earnings before interest, taxes, depreciation, and amortization) ratio of 4 -- which is less than Realty Income's.
I also like that Agree Realty is well-diversified across the retail industry. No sector provides more than 10% of its revenue, and it has exposure to 15 core retail industries. The REIT's dividend yields nearly 3.5% at its current share price, which is slightly less than Realty Income's yield, but still far above the average of the S&P 500.
Plus, it has an impressive dividend-hiking track record. The REIT has increased its payouts every year since 2012, growing its dividend by 80%. That's about 10% more than Realty Income boosted its payouts during the same period. Its stock price also outperformed the S&P 500 and Realty Income over the last one-year and five-year periods. As you can see, there's a lot to love about this stock, especially if income growth and reliable monthly payments are what you seek.
