Monthly Dividend Stock In Focus: Agree Realty

Up to date on February twenty fourth, 2023 by Felix Martinez

Actual Property Funding Trusts, or REITs for brief, are a core holding for a lot of earnings buyers because of their excessive dividend yields. The coronavirus pandemic was devastating for a lot of REITs, however not all struggled in 2020. Agree Realty (ADC) sailed by way of 2020 with a number of dividend will increase, and the corporate has returned to funds-from-operations development in 2021 and past.

Agree Realty can also be a rarity amongst REITs in that it pays a month-to-month dividend. Month-to-month dividend shares pay shareholders 12 dividends per 12 months as an alternative of the extra typical quarterly funds.

We created a listing of fifty month-to-month dividend shares (together with essential monetary metrics comparable to dividend yields and payout ratios). You may obtain the spreadsheet by clicking on the hyperlink beneath:

Agree Realty has a 3.9% dividend yield, which is decrease than many different REITs. However excessive high-yielders ought to typically be prevented as a result of such high-yielding shares usually have unsustainable dividends.

Agree Realty’s dividend yield is nicely above the S&P 500 common. And it has a excessive degree of dividend security, together with the potential for top dividend development within the coming years.

Enterprise Overview

Agree Realty is a retail Actual Property Funding Belief. As of December thirty first, 2022, it owned and operated a portfolio of 1,839 properties situated in 48 states overlaying roughly 38.1 million sq. ft of gross leasable space. As of the 2022 fourth quarter, the portfolio was about 99.7% leased and had a weighted common remaining lease time period of roughly 8.8 years. The inventory has a market capitalization above $6.6 billion.

It has a diversified property portfolio, as its high 3 tenants comprise lower than 16.2% of the annual base hire. Properties span a lot of completely different trade teams, together with grocery shops, dwelling enchancment retailers, auto service, and comfort shops.

Supply: Investor Presentation

On the similar time, Agree Realty has high-graded its portfolio by lowering its publicity to tenant teams most in danger from the present challenges, particularly the coronavirus pandemic. For instance, Agree Realty derives simply 2% of its annual base hire from well being golf equipment and health facilities and simply 1% of ABR from film theaters. In all, Agree Realty generates two-thirds of its ABR from investment-grade tenants.

This portfolio high quality is mirrored within the firm’s sturdy fundamentals. Agree Realty continues to publish spectacular leads to a particularly difficult interval for a lot of REITs, significantly these working within the retail trade.

In the latest quarter, adjusted Funds From Operation elevated by 3.9% to $84.4 million. FFO-per-share elevated 4.9% to $0.86 for the quarter, in comparison with final 12 months’s quarter.

For the complete 12 months of 2022, Adjusted FFO elevated 28.7% to $304 million, whereas on a per-share foundation, adjusted FFO rose 9.1%. Per-share AFFO development was a lot decrease than total AFFO development because of the dilutive impression of share issuances. Nonetheless, the corporate has generated sturdy development for 2022, even on a per-share foundation.

Progress Prospects

Agree Realty grew adjusted funds from operations by a median of simply over 6% up to now 5 years. We estimate the belief can proceed rising AFFO on common on the mid-point of 4.5% into 2028. We see Agree Realty with the ability to develop AFFO by way of its three-pronged development technique revolving round acquisitions, improvement, and accomplice capital options.

As Agree Realty continues to spend money on new properties, future development is probably going. Agree Realty invested roughly $404.9 million in 131 retail web lease properties within the fourth quarter. Trying again additional, it has invested over $5 billion in properties since 2015.

Supply: Investor Presentation

The corporate just lately raised its full-year acquisitions goal to $1.1 billion-$1.3 billion. Hire will increase can even present FFO development.

Agree Realty, like most REITs, is extremely reliant on the solvency of its tenants, so any headwind or recession throughout the economic system will immediately have an effect on it. To fight this, the company emphasizes a balanced portfolio with publicity to counter-cyclical sectors and retailers with strong credit score profiles.

Moreover, they keep away from retailers counting on non-public fairness sponsors and like to accomplice with main operators with sturdy steadiness sheets.

Dividend Evaluation

Previous to 2021, Agree Realty had paid a quarterly dividend just like the overwhelming majority of dividend shares. However in 2021, the corporate switched to the month-to-month dividend schedule.

Agree Realty presently pays a month-to-month dividend of $0.24 per share. On an annual foundation, the $2.88 dividend payout represents a 3.9% present yield. Contemplating the S&P 500 Index presently yields simply 1.7%, Agree Realty inventory is a beautiful possibility for earnings buyers. And the corporate grows its dividend recurrently. Agree Realty elevated its dividend by roughly 6.8% per 12 months up to now 5 years.

The dividend can also be extremely safe. Primarily based on the anticipated AFFO of $3.95 in 2023, Agree Realty has a projected dividend payout ratio of 74.9% for the complete 12 months. Agree Realty’s payout ratio has remained extremely constant within the final decade, across the mid–70s, and we see this has very slowly grown to just about 80%. It is a wholesome payout ratio for a REIT, which should pay out nearly all of its earnings to shareholders.

The corporate operates a wholesome steadiness sheet with a web debt-to-equity ratio of 0.5x, nicely beneath many different REITs. Retaining a manageable degree of debt is essential for REITs to maintain the price of capital down. The corporate’s monetary leverage ratio can also be low at 1.6x. The corporate maintains investment-grade credit score scores of BBB.

Ultimate Ideas

Actual Property Funding Trusts are widespread for his or her excessive dividend yields, however excessive high-yielders ought to be prevented. Buyers mustn’t ignore REITs with considerably decrease yields, as these REITs usually have superior fundamentals. Agree Realty is an instance of this; though it has a 3.9% yield that trails many different REITs, it makes up for this with a excessive dividend security and development fee.

Because of this, we view it as a strong decide for earnings buyers, significantly these keen on dividend development.

If you’re keen on discovering extra high-quality dividend development shares appropriate for long-term funding, the next Certain Dividend databases can be helpful:

The foremost home inventory market indices are one other strong useful resource for locating funding concepts. Certain Dividend compiles the next inventory market databases and updates them month-to-month: