Agree with real estate (NYSE:ADC) has become a magnificent dividend stock over the past decade. The real estate investment trust (REIT) has increased its dividend at a compound annual rate of 5.6% during this period. It also moved from paying quarterly dividends to a monthly schedule, increasing its appeal to those looking for a recurring income stream.
Despite Agree Realty’s success, the shares of REIT fell about 25% from their peak level of 2022. This sale and a steadily increasing payment pushed its dividend yield up to 5.1%, which is significantly higher than S&P500 (1.4% dividend yield). With more growth ahead, this is a great dividend stock to buy and hold for a potential lifetime of recurring passive income.
Still growing despite a sharp decline headwind
Rising interest rates were the main factor weighing on on Agree on Realty’s Stocks Over the Past a pair of years. Higher rates affect the value of real estate, driving it down to increase income yields compared to less risky alternatives like bonds. They also make it more expensive for REITs like Agree Realty to borrow money to finance new acquisitions.
Even though rising rates are an obstacle to the REIT’s growth, it continues to grow. The company recently reported its first quarter results and increased its adjusted funds from operations (FFO) per share by 4.6% compared to the same period last year.
The company benefited from the acquisition of nearly $1.2 billion in properties in 2023 and invested approximately $150 million in development projects. These growth investments have allowed the REIT to increase its monthly dividend payout by 2.9% over the past year.
Agree Realty continued to find attractive investment opportunities this year. He invested $140 million in 50 retail stores net lease properties in the first quarter.
That total included spending $123.5 million to acquire 31 properties. He purchased this property at a weighted average price Capitalization rate by 7.7%. The company benefited from falling real estate values lock higher income yields.
Designed to perform in any environment
Agree Realty remains in a strong position to continue to develop its real estate portfolio. It has a conservative dividend payout ratio for a REIT (72% of its adjusted FFO at the end of the first quarter), which allows it to retain significant free cash flow to fund new investments.
The REIT also has a fortress-like balance sheet. It is leverage ratio was 4.3 times at the end of the first quarter after accounting for the impact of an unsettled stock futures trade. It is a very weak level for a REIT, particularly if it is focused on owning highly resilient net lease real estate. Meanwhile, it has no debt maturities until 2028 and ended the period with more than $920 million in total liquidity, including cash, outstanding term capital and the availability of its revolving credit facility .
Agree Realty’s financial resources allow it to estimate that it can acquire approximately $600 million in real estate this year despite continued unfavorable interest rates. This should allow the REIT to increase its adjusted FFO to between $4.10 and $4.13 per share, approximately 4% to 5% higher than last year. The REIT can generate this growth without deviating from its core strategy or increasing its risk.
Due to the company’s conservative strategy and financial profile, it is able to continue its growth. in the future. It has also established relationships with several high-quality retailers, providing built-in expansion potential. He can buy their existing properties in sale and leaseback transactions and provide them with development funds.
The company estimates that its existing partners own more than 165,000 properties eligible for net leases. Given that he Currently owns fewer than 2,200 properties, it has a long runway for growth ahead of it. She can continue to be disciplined and selectively invest in properties that meet her high standards.
A low-risk dividend stock built for the long term
Agree Realty has done a great job increasing its dividend over the past decade. It has adopted a conservative approach, building a high-quality portfolio protected by a fortress-style balance sheet.
This strategy allows it to continue growing in almost any environment. Add in its massive growth runway and attractive current valuation, and Agree Realty looks like an ideal dividend stock to buy and hold for the very long term.
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Matt DiLallo has no position in any of the stocks mentioned. The Motley Fool has no position in any of the securities mentioned. The Motley Fool has a disclosure policy.
1 Gorgeous Dividend Stock Down 25% to Buy and Hold Forever was originally published by The Motley Fool
