Growth stocks aren't the only way to supercharge a portfolio. Dividend stocks can be an equally valuable way to grow your earnings, particularly if the company makes healthy dividend increases over time. One unstoppable stock on track for supersized growth with a long history of dividend increases is net lease real estate investment trust (REIT) Agree Realty (ADC 1.18%).
Agree Realty is likely one of the last companies that come to mind when you hear adjectives like "unstoppable" or "supercharged". However, based on the company's track record, it clearly lives up to the accolades. The net lease REIT has increased its divdend payouts by 80% since 2012 and is growing like crazy, spending over $1.7 billion on new acquisitions last year. Let's take a closer look at the REIT today and see why this solid dividend-paying stock could help deliver oversized returns in the coming years.
Set up for supercharged growth
At the start of 2023, Agree Realty had over 1,800 retail properties in its portfolio, which it primarily leases to investment-grade tenants across the country. In addition, it has a portfolio of ground leases that rent undeveloped land to existing investment-grade tenants for future development. At the end of 2022, ground leases made up just over 12% of its annual income, with its retail properties the main source of its revenues.
Net lease REITs aren't normally high-growth stocks due to the nature of their business. Net leases pass most financial obligations and responsibilities onto the tenants, which creates low overhead for the company. These REITS lock in tenants for 7- to 20-year lease terms and incrementally increase rent to offset inflation. As a result, revenue growth is slow but steady.
That means companies like Agree Realty have to rely on new acquisitions and developments to grow their earnings. The REIT took full advantage of the low cost of borrowing in the wake of the global pandemic, spending just over $5 billion to expand its portfolio from 2020 to 2022. This is more than two times its acquisition spend from 2015 to 2019 combined.
Even though interest rates have risen, Agree Realty has a stockpile of low-cost capital to continue growing. And since real estate prices are weakening in light of higher interest rates, this should present the company with favorable buying opportunities without negatively impacting its top-notch financial profile. The company has low debt ratios and a BBB credit rating, with no major debt maturities until 2025. The perfect conditions for supercharged growth.
Twelve years strong, and its dividend should keep rising
Its recent expansion efforts haven't gone unnoticed by investors. The stock is up 16% since last year. This is an impressive gain considering most other REITs lost as much as 25% of their value last year. It doesn't hurt that its dividend yield is over double the average of the S&P 500 at just under 4%.
However, investors shouldn't expect share price growth at this rate to be sustainable. Its historical share price growth over the last 10 years has been modest at best until last year. The real appeal of Agree Realty is its history of dividend increases which is where the real power of supercharging your portfolio lies. The REIT has grown its dividend payouts for 12 straight years and has ample coverage for its dividend. Its payout ratio, which often is used as an indicator of future increases or of risk of a cut, is 75%. This is well within the normal range for a REIT. Given its pipeline of real estate deals, I believe the company should see healthy growth in its funds from operations (FFO) that will allow it to continue raising its dividend payments.
To really show you how powerful this can be, a $1,000 investment in the stock in 2013 would have grown into over $4,000 today, and each share owned would pay $2.88 in passive income per year. That may not seem like much compared to other high-growth stocks, but that would equate to an ultra-high dividend yield of 10% today. If growth and reliability are what you're after, Agree Realty is a fantastic stock for supercharging your portfolio.
