Agree with real estate (NYSE:ADC) is a fairly attractive net lease real estate investment trust (REIT). But it’s not the only net lease REIT you can buy, nor is it the largest. If you’re a conservative investor focused on dividend consistency, you might be better off buying the net leasing giant. Real estate income (NYSE:O) instead. Here’s a look at why.
Okay, he has a great track record, but not a long one
Agree Realty has increased its dividend every year for the past nine years. The compound annual growth rate of dividends over the past decade is approximately 6%. Those aren’t bad stats in an industry known for turtle-like performance. Digging a little into history, over the last 10 years, the REIT expanded its portfolio from 109 commercial properties in 2013 to 2,135 in 2023. So the growth story of the last decade is really about portfolio expansion.
But it is important to understand the change that has occurred. Okay has grown from a single player to a major player in the net lease industry (net leases require tenants to pay most of the operating expenses at the property level). In fact, it was so small when it was made public that the bankruptcy The presence of a single tenant was enough to force a dividend cut in 2011. The business is very different today and no tenant or property vacancy would have a similar impact. And there will likely be significant growth ahead of the REIT. After all, the largest player in the net rental industry, Realty Income, owns more than 15,400 properties.
Slow and steady isn’t so bad
That said, for more conservative investors, it might make sense to buy a company like Realty Income because it has the scale to compete on a different level. For example, Realty Income’s consecutive streak of annual dividend increases can be as long as 30 years. Of course, dividend growth over this period has been around 4% per year, which is slower than Agree’s historical dividend growth. But if you’re retired and focused on creating a reliable income stream, Realty Income’s dividend track record is far superior.
Then there are the benefits of scale that Realty Income offers. Being so large, it has easier access to capital markets, which lowers its cost of capital. It also has exposure to Europe, where it can sometimes sell bonds offering attractive yields. This is not to say that Agree is somehow capital constrained, which does not appear to be true, but only that industry giant Realty Income is better positioned on the capital front. raising capital. This allows it to be aggressive when pursuing acquisitions.
Realty Income’s size also allows it to purchase properties, or portfolios of properties, that Agree could never consider due to its small size. This includes Realty Income acting as an industry consolidator, buying up smaller companies like Agree with little to no difficulty. While Agree’s ability to select deals has obvious advantages, Realty Income’s size opens up a whole new level of investment opportunities. A good example comes from Europe, where the net lease approach is relatively new. Companies generally seek to sell entire portfolios there and not isolated properties. Large REITs like Realty Income have a head start on smaller players in the region.
For you, do performance and story trump growth?
Ultimately, choosing between Agree Realty and Realty Income is about nuance, not shocking variation. For example, the faster-growing Agree’s dividend yield is 4.9%, while Realty Income’s is 5.9%. Sure, Realty Income’s yield is significantly higher, but they are both high-yielding stocks. And Agree’s lower yield is a function of its faster dividend growth and future growth prospects. This will attract many investors, but probably not all. Realty Income’s role as an industry leader and impressive long-term track record will likely make it a better choice for conservative investors trying to maximize their current income.
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Ruben Gregg Brewer holds positions in the real estate income sector. The Motley Fool posts and recommends Realty Income. The Mad Motley has a disclosure policy.
Forget Agree Realty, buy this great REIT stock instead was originally published by The Motley Fool
