As interest rates began to rise two years ago, investors became unhappy with the real estate investment trust (REIT) sector. This isn’t shocking, since REITs use debt to purchase property. But the short-term consequences of rising interest costs won’t derail long-term opportunities in the REIT sector, since real estate markets have historically adapted to changes in interest rates.
If you’re looking for income today, you’ll want to look into REITs. Agree with real estate (NYSE:ADC), Real estate income (NYSE:O)And REIT NNN (NYSE:NNN). Here’s why.
A common theme
The factor that ties Agree Realty, Realty Income, and NNN REIT together is the net lease approach. A net lease requires the tenant to pay most of the costs of operating the property, including items such as maintenance and taxes. This allows the tenant to control what is a vital property for them and frees up the REIT focus on growing your portfolio. With a large enough portfolio, net leases are a relatively low-risk way to invest in real estate.
These three REITs are investing heavily in the retail sector. Net lease commercial properties tend to be quite similar to each other. This means they are easy to buy and sell. It is also easy to re-rent a well-located asset in the event of vacancy. For the most conservative dividend investors, owning a net lease REIT, or even three, makes perfect sense. The real question is what type of dividend stocks you would like to own. You have options in the net rental space.
Buy Agree Realty for Dividend Growth
Agree Realty has grown rapidly over the past decade, expanding its portfolio from 130 properties in 2013 to 2,135 in 2023. This has supported the REIT’s annualized dividend growth of approximately 6% during this period. To be honest, that’s not huge on an absolute level, but it’s pretty high for a REIT, so Agree rewards investors for holding shares very well.
The big story here is dividend growth, and that’s exactly what sets Agree apart from Realty Income (average annual dividend growth of 3.4% over the past decade) and NNN REIT (growth of 3.3 %). That said, the REIT’s size is also important, given that it owns far fewer properties than industry giant Realty Income, which has a portfolio of 15,400 assets. This suggests that there is still a very long runway for growth for Agree Realty. Meanwhile, Wall Street’s near-term concerns over interest rates have pushed the dividend yield to a decade high of nearly 4.9%.
Buy Realty Income to own the industry giant
As noted above, Realty Income has a large portfolio of properties. This is, by far, the largest net lease REIT you can buy. It’s also a very well-run company; it has increased its dividend every year for 30 consecutive years and its balance sheet is rated investment grade. The yield is also near decade highs, at 5.9%. The tradeoff for this higher yield is slower dividend growth, as noted above. Realty Income is more of a slow and steady turtle.
But there are other things to consider. To begin with, Realty Income’s size and financial strength allow it privileged access to capital markets. This means it can bid aggressively on assets while still making profitable investments. It can also act as an industrial consolidator, buying smaller competitors.
In addition, its size has allowed it to go beyond the American net leasing market towards Europe, thus offering it another lever for long-term growth. It offers a bit more diversification as it has a modest number of net rental industrial assets in addition to its primary focus on commercial properties. If you are a conservative investor and prefer to own dominant, net lease companies, this is Realty Income.
Buy NNN REIT for consistency
The last REIT here is NNN REIT, which has increased its dividend every year for 34 years. That’s four years longer than Realty Income, making it the most consistent dividend payer on the list. According to the company, this is the third longest streak among all REITs. What’s even more interesting is how NNN REIT has grown its business over time, with over 70% of its acquisitions since 2007 coming from retailers with which it already had a working relationship.
What does this really mean for investors? NNN REIT is effectively growing with the retailers in its portfolio. It is a reliable partner and an essential source of capital when retailers wish to sell assets to raise funds for expansion. NNN REIT is not the largest REIT on the market, with a portfolio of around 3,500 properties. But she knows her tenants well because she has worked with most of them for years. And those relationships resulted in slow, steady growth over time. Investors benefit from the resulting dividend growth and the good night’s sleep they’ll get from a relationship-driven REIT with an impressive dividend history.
Act now while you still can
Even if you only have $500 to invest, you may want to consider putting that money to work in one or more of these net lease REITs. Wall Street is pessimistic on the sector, but Agree, Realty Income and NNN REIT have not missed a beat. They are still the same companies as before. Acting now will allow you to add companies with historically high returns and still strong long-term prospects to your portfolio. Ultimately, getting paid well while waiting for housing markets to adjust to higher rates should seem like a pretty good plan if you’re a dividend believer.
Should you invest $1,000 in Agree Realty right now?
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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.
The Smartest Dividend Stocks to Buy with $500 Right Now was originally published by The Motley Fool
