Agree Realty (ADC 0.88%) is a real estate investment trust (REIT) that cut its dividend in 2011. That said, the company is vastly different today than it was back then. In fact, the dividend has been increased annually for roughly a decade at this point. If you are looking for a dividend stock, you'll probably want to consider Agree today. Here are three reasons why.
1. Agree Realty has an attractive yield
Dividend investors generally pay a great deal of attention to dividend yields, which makes total sense. In this case, Agree Realty's yield is about 4.9%. That is more than the 1.3% you'll find from the S&P 500 index. It is also higher than the yield of the average REIT, which comes in at roughly 4.2%, using the Vanguard Real Estate Index ETF (VNQ 0.80%) as a proxy.
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In addition to having an attractive yield relative to other options, Agree Realty's yield also toward the high end of its historical range during the past decade. That suggests that the stock is on sale right now. The high interest rate environment has something to do with that, because higher rates make it more expensive for REITs to do business. But, in time, property markets have always adjusted to rate changes. So, this is likely to be a temporary headwind.
2. Agree Realty is a different company today
Sticking with the dividend for a moment, Agree Realty cut its dividend in 2011. That might leave some people wondering what went wrong. The answer is that it owned less than 100 properties at that point, and the bankruptcy of a key tenant left it with little choice but to cut its dividend. That was a long time ago, and the dividend has been increased every year since dividend growth resumed in 2013.
But the really important story here isn't the dividend. It is the portfolio, which is basically what generates the cash flow needed to support the dividend. From less than 100 properties in 2011, the REIT today owns more than 2,100 properties. No single tenant accounts for more than 6% of rents, and the majority of its tenants are either investment-grade-rated or large retailers, or both. In other words, Agree Realty's foundation is solid today.
3. Agree Realty has room to grow
The future, meanwhile, is still bright. For example, Agree Realty's 2,100 or so properties are a drop in the bucket compared to the more than 15,400 that industry giant Realty Income (O 0.74%) owns. And, notably, Agree's focus is on net lease retail properties (net leases require tenants to pay most property-level operating expenses), which is a very liquid market. The assets are easy to buy and sell, and new tenants can usually be found quickly for well-located assets. There's no reason to believe that the REIT will have trouble continuing to expand.
For example, despite higher rates, Agree Realty was able to buy 31 properties in the first quarter of 2024. In other words, it is still able to cherry-pick assets despite high interest rates. Although growth may be a bit slower now than it has been in recent years, the REIT is clearly managing through this difficult interest rate environment in relative stride.
Buy and hold for the long term
The key thing to think about with Agree Realty is that you are buying a dividend stock. It is not meant to be exciting; it is designed to be a reliable and growing company. And along the way, you'll likely collect a growing dividend stream. With the shares seemingly on sale today, this is the type of dividend stock you buy and put on autopilot for the long term.
