Monthly Dividend Stock In Focus: Agree Realty

Revealed on August ninth, 2021 by Bob Ciura

Actual Property Funding Trusts, or REITs for brief, are a core holding for a lot of revenue buyers as a result 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.

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

We created a listing of almost 50 month-to-month dividend shares (together with necessary monetary metrics similar to dividend yields and payout ratios). You may obtain the spreadsheet by clicking on the hyperlink under:

Agree Realty has a 3.5% dividend yield, which is decrease than many different REITs. However excessive high-yielders ought to usually be averted as a result of such high-yielding shares typically have unsustainable dividends.

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

Enterprise Overview

Agree Realty is a retail REIT. As of June thirtieth, it owned and operated a portfolio of 1,262 properties, situated in 46 states masking roughly 26.1 million sq. ft of gross leasable space. As of the 2021 second quarter, the portfolio was roughly 99.5% leased, and had a weighted-average remaining lease time period of roughly 9.7 years. The inventory has a market capitalization above $5 billion.

It has a diversified property portfolio, as its high 3 tenants comprise lower than 15% of annual base lease. Properties span a variety of completely different trade teams, together with grocery shops, residence 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 lease 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. In a particularly difficult interval for a lot of REITs, notably these working within the retail trade, Agree Realty continues to publish spectacular outcomes.

In the latest quarter, adjusted Funds From Operation elevated 41.6% to $57.6 million. FFO-per-share elevated 16% to $0.88 for the quarter, in contrast with the identical quarter final yr.

Within the 2021 first half, core FFO elevated 43% to $112 million. Adjusted FFO elevated 41% to $110 million, whereas on a per-share foundation adjusted FFO rose 9.2%. Per-share AFFO development was a lot decrease than general AFFO development as a result of dilutive affect of share issuances. Nonetheless, the corporate has generated sturdy development to start 2021, even on a per-share foundation.

Development Prospects

Agree Realty grew adjusted funds from operations by a median of simply over 6% previously 5 years. We estimate they’ll proceed rising AFFO on common on the mid-point, at 5.0% into 2026. We see Agree Realty with the ability to develop AFFO by way of their three-pronged development technique revolving round acquisitions, improvement, and accomplice capital options.

Future development is probably going, as Agree Realty continues to put money into new properties. Agree Realty invested roughly $366 million in 59 retail web lease properties within the second quarter. Wanting again additional, it has invested $5 billion in properties since 2010.

Supply: Investor Presentation

The corporate lately raised its full-year acquisitions goal to $1.2 billion-$1.4 billion. Hire will increase will even present FFO development.

Agree Realty, like most REITs, is very reliant on the solvency of its tenants so any headwind or recession throughout the financial 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 who depend on non-public fairness sponsors and like to accomplice with main operators who possess sturdy steadiness sheets.

Dividend Evaluation

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

Agree Realty presently pays a month-to-month dividend of $0.217 per share. On an annual foundation, the $2.604 dividend payout represents a 3.5% present yield. Contemplating the S&P 500 Index presently yields simply 1.3%, Agree Realty inventory is a lovely choice for revenue buyers. And, the corporate grows its dividend frequently. Up to now 5 years, Agree Realty elevated its dividend by roughly 13% per yr.

The dividend can be extremely safe. Based mostly on anticipated AFFO of $3.28 in 2021, Agree Realty has a projected dividend payout ratio of 79% for the complete yr. Agree Realty’s payout ratio has remained extraordinarily constant within the final decade across the mid–70s, and we see this has very slowly grown to just about 80%. For a REIT, which should pay out the vast majority of earnings to shareholders, it is a wholesome payout ratio.

The corporate operates a wholesome steadiness sheet with a web debt-to-EBITDA ratio of three.6x, which is effectively under many different REITs. Retaining a manageable degree of debt is essential for REITs, to maintain the price of capital down. Its sturdy steadiness sheet additionally options well-laddered maturities, as Agree Realty has simply $28 million in maturities by way of 2024. The corporate maintains investment-grade credit score scores of Baa2/BBB.

Remaining Ideas

Actual Property Funding Trusts are well-liked for his or her excessive dividend yields, however excessive high-yielders ought to be averted. Traders shouldn’t ignore REITs with considerably decrease yields, as these REITs typically have superior fundamentals. Agree Realty is an instance of this; though it has a 3.5% yield which trails many different REITs, it makes up for this with excessive dividend security and a excessive dividend development charge.

Agree Realty is without doubt one of the largest beneficiaries of the reopening of the U.S. financial system and the gradual finish of the pandemic. Because of this, we view it as a stable decide for revenue buyers, notably these excited about dividend development.