Considering an alternative to investing in Agree Realty, is buying this stock with millionaire-making potential a better choice?
Considering an alternative to investing in Agree Realty, is buying this stock with millionaire-making potential a better choice?
Agree Realty Corporation (ADC 1.14%) has been a standout stock in 2024, with a share price surge exceeding 15%. This is approximately three times the average return for real estate investment trusts (REITs). Although Agree's dividend yield is slightly above the REIT average at around 4% (compared to the 3.7% average), it might be worth considering a value-focused alternative. Here's a promising option to explore.
Reasons to appreciate Agree Realty Corporation
Agree Realty Corporation is an efficiently managed net lease REIT (Net lease requires the tenant to cover most property-level maintenance costs). The past decade has seen significant growth. The dividend has increased annually at approximately 6%. The property portfolio has expanded from 130 properties at the end of 2013 to 2,271 at the end of Q3 2024.
This REIT has undergone a remarkable transformation since 2011, when it was forced to reduce its dividend due to a large tenant's bankruptcy. The company learned from this experience, focusing on acquiring top-tier tenants. For instance, it has gradually moved away from troublemaker Walgreens, a struggling pharmacy retailer, to stronger performers such as TJX (NYSE: TJX), a successful off-price retailer.
For investors searching for dividend growth stocks, Agree Realty Corporation is an attractive choice. However, there's a small snag – the price. Given Agree's impressive share price increase while other REITs stagnated, another REIT, Realty Income (O 1.29%), has actually seen its shares decline by around 5% in 2024. Realty Income boasts a significantly higher dividend yield than Agree, at 5.8%.
Consider Realty Income over Agree Realty Corporation
Realty Income is a more gradual and steady performer than Agree. For instance, while Agree's dividend growth has averaged around 6% annually over the past decade, Realty Income's dividend has grown at a slower pace of approximately half that rate. If rapid dividend growth is the primary concern, Agree remains a better choice.
That being said, Realty Income has consistently raised its dividend for three decades. It boasts an investment-grade rated balance sheet. Its property portfolio is diversified across various sectors, such as retail and industries, as well as emerging areas like data centers and casinos. Its 15,400-strong property portfolio spans both the US and European markets. Realty Income is a slow and steady giant in the net lease industry, being approximately four times the size of its closest competitor's industry-leading portfolio. Over time, an investment in Realty Income has proven to be financially rewarding for investors.
Realty Income's total return, including dividend reinvestment, has surpassed the S&P 500 index's return since its initial public offering. This exceedingly impressive performance may not be consistently replicated, but if building wealth over time is the goal, Realty Income could still be a cornerstone investment.
The strongest point at this moment compared to Agree Realty Corporation is that Realty Income's stock has slipped by 5% in 2024, boosting its dividend yield to an appealing 5.8%. This generates more income than owning Agree, making Realty Income a more appealing alternative for investors with a focus on maximizing their portfolio's passive income. Furthermore, Realty Income appears less expensive, with a price-to-2024 projected adjusted funds from operations (FFO) ratio of 13 times, in contrast to Agree's ratio of nearly 18 times. In essence, Realty Income appears to be the more financially attractive choice.
Neither is flawed, but one is more appealing
Investing in Agree Realty Corporation or holding onto an existing position is unlikely to be a misstep, particularly for those focusing on dividend growth. However, given Agree's strong performance relative to other REITs and net lease peers, notably Realty Income, if income or value are the primary considerations, Realty Income is likely the better option.
Investors looking to maximize their portfolio's passive income might find Realty Income more appealing due to its current 5% share price decline, boosting its dividend yield to 5.8%. This is higher than Agree Realty Corporation's dividend yield despite Agree's impressive share price increase.
Furthermore, Realty Income's price-to-2024 projected adjusted funds from operations (FFO) ratio of 13 times is lower than Agree's ratio of nearly 18 times, indicating that Realty Income might be considered more financially attractive.
This suggests that while both Agree Realty Corporation and Realty Income have their merits, particularly for dividend growth investors, Realty Income might be a more appealing choice for those focusing on income or value.