Agree Realty (ADC 0.11%) has a lofty dividend yield of 5%, which is drastically higher than the 1.3% on offer from the S&P 500 and notably above the 4.3% from the average real estate investment trust (REIT), using Vanguard Real Estate Index ETF (VNQ -0.10%) as a proxy.
But is this high-yield REIT the right dividend stock for you? Here's what you need to know.
Agree Realty had a tough year in 2011
Before talking about today, it pays to revisit 2011, the year in which Agree Realty cut its quarterly dividend from $0.51 per share to $0.40 per share. There were two reasons for the cut. First, at that point Agree was a fairly small REIT, starting that year with just 81 properties. Second, Borders bookstore chain (roughly 20% of the rent roll) went bankrupt and terminated leases. Given the small size of the REIT at the time, it couldn't take the hit without reducing the dividend.
Image source: Getty Images.
As the saying goes, though, that was then and this is now. Today Agree owns over 2,100 properties. Its largest tenant is Walmart at around 6% of rents, but Walmart is investment-grade rated and seems unlikely to go bankrupt any time soon. So Agree is a larger and far more diversified net-lease REIT now than it was when the bankruptcy of a single tenant forced it to cut its dividend. (Net leases require tenants to pay for most property-level operating costs.)
In fact, since cutting the dividend in 2011, the dividend has been on a steady upward trajectory. The track record is complicated by a shift from quarterly to monthly dividends that took place in 2021, but for retired dividend investors that change is probably a big positive.
How does Agree stack up to the biggest net lease REIT?
So Agree Realty has changed for the better in multiple ways as it has grown as a company. But that doesn't mean it will be the best high-yield REIT for you. Many investors may actually prefer net-lease REIT giant Realty Income (O 0.04%), which has increased its dividend annually for 30 consecutive years and has a higher dividend yield, at roughly 5.9%. But there are some important differences here.
For starters, Realty Income is the largest net-lease REIT you can buy, with a market cap of $48 billion and a portfolio of more than 15,400 properties. It takes a huge amount of investment activity to move the needle on the top and bottom lines. By comparison, Agree's market cap is just $6 billion and, as noted above, it only owns around 2,100 properties. Agree can move the needle with far fewer property acquisitions. This is a big difference.
ADC Dividend Per Share (Annual) data by YCharts
Over the past decade, Agree's dividend has grown by nearly 70% while Realty Income's has increased by roughly 40%. Realty Income is an industry stalwart appropriate for more conservative income investors, but dividend growth has been relatively modest compared to Agree. If you are looking for a mix of dividend growth and current income, Agree is likely to be the better option.
Worried about inflation?
This comparison is important because inflation erodes the buying power of dividends over time if the dividends aren't increased at a rate that is equal to or higher than inflation. To be fair, industry giant Realty Income has managed to slightly outpace the rate of inflation growth over time with its dividend, but Agree has simply done a better job of that lately. Given Agree's relatively modest size that trend is likely to remain in place for the foreseeable future.
If you only want to own the biggest and best from every industry in which you invest you'll want to buy Realty Income. But if you think dividend growth is an important defense against the ravages of inflation, then you'll probably prefer Agree. Or you could just avoid the debate and buy both.
