Agree Realty (NYSE: ADC) has been a popular stock in 2024, with a share price gain of more than 15%. That’s roughly three times the return of the average real estate investment trust (REIT). Although Agree’s dividend yield is above the REIT average at around 4% (versus the 3.7% average), it might be time to consider a value-conscious alternative. Here’s the biggest option that you should be looking at today.
Agree Realty is a very well-run net lease REIT (a net lease requires the tenant to pay for most property-level operating costs). The last decade or so has been a period of robust growth. The dividend has been increased at a pace of around 6% a year. The number of properties in the portfolio has gone from 130 at the end of 2013 to 2,271 at the end of the third quarter of 2024.
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This is a very different REIT than it was in 2011, when Agree was forced to cut its dividend because of the bankruptcy of one large tenant. In fact, that lesson was taken to heart, with the company specifically working to fill its portfolio with the highest-quality tenants. As an example, it has long been shifting away from Walgreens, a troubled pharmacy retailer, and toward stronger-performing companies like TJX (NYSE: TJX) an off-price retailer.
For investors looking to add a dividend growth stock to their portfolios, it makes sense to consider Agree. There’s just one small problem — the price. As noted, Agree’s shares have rallied strongly while other REITs have lagged behind. In fact, one specific REIT, Realty Income (NYSE: O), has actually seen its shares fall roughly 5% in 2024. It has a notably higher dividend yield than Agree, too, at 5.8%.
Realty Income is a bit more of a slow and steady tortoise than Agree. For example, while Agree’s dividend has grown at around 6% a year over the past decade, Realty Income’s dividend has grown at about half that rate. Clearly, if you’re looking for rapid dividend growth, Agree likely remains a better choice for you.
That said, Realty Income has increased its dividend for three decades. It has an investment grade rated balance sheet. Its portfolio is widely diversified, including assets in the retail and industrial sectors, along with some new ventures into areas like data centers and casinos. Its over 15,400-strong property portfolio is spread across both the U.S. market and Europe. It is a slow and steady net lease industry giant, roughly four times the size of the industry’s next closest competitor. That said, an investment in Realty Income has paid off handsomely for investors over time, as the total return graph below shows.
O Total Return Level data by YCharts.
Realty Income’s total return, which assumes dividend reinvestment, has been more than double that of the S&P 500 index since its initial public offering. That’s pretty impressive and may not repeat itself, but if you are trying to build wealth over time, this millionaire-making stock could still be a cornerstone investment for your portfolio.
The most attractive thing right now relative to Agree is that Realty Income’s stock has fallen 5% so far in 2024, which has pushed its dividend yield up to that relatively attractive 5.8%. That’s a lot more income than you would generate from owning Agree, which might make Realty Income the winner for those with a bias toward maximizing the passive income their portfolio throws off. It also hints at a stock that is much less expensive. Agree’s price to 2024 projected adjusted funds from operations (FFO) ratio is nearly 18 times, compared to just 13 times for Realty Income. Basically, Realty Income looks like the value pick, too.
You probably wouldn’t be making a mistake to buy Agree Realty or to stick with it if you own it, particularly if you are focused on dividend growth. However, the stock has performed very well relative to other REITs and other net lease peers, notably the industry’s 800-pound gorilla, Realty Income. At this point, if you are more interested in current income or have a preference for value over growth, Realty Income is probably a more attractive option.
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Reuben Gregg Brewer has positions in Realty Income. The Motley Fool has positions in and recommends Realty Income, TJX Companies, and Vanguard Real Estate ETF. The Motley Fool has a disclosure policy.
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