This 3.9%-Yielding Monthly Dividend Keeps Heading Higher – Motley Fool

December 14, 2021 by No Comments

ADC Realty ( ADC 0.32% ) doesn’t get enough credit for its success as a dividend stock. The real estate investment trust (REIT) has a long history of growing its payout, which currently yields an attractive 3.9%. Meanwhile, earlier this year, it joined the limited ranks of companies paying a monthly dividend

The retail REIT recently gave investors another raise, adding to its impressive total this year. That upward trajectory should continue, making Agree Realty stand out as a compelling option for investors seeking to generate passive income.

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An overlooked dividend growth stock

Agree Realty has grown its dividend at a 5% compound annual rate over the last decade. It has accelerated that pace over the past year. In October, the company announced a 4.6% increase in its payout compared to the prior month. That new rate was also 9.8% above the company’s dividend level at the end of last year.  

The main factor driving that dividend growth is acquisitions. The company has spent more than $1 billion to acquire 219 properties across 40 states through the end of the third quarter. That included $340.1 million of deals in the third quarter when it purchased 80 properties in 28 states.

Agree Realty isn’t buying any property it can get its hands on these days. It’s taking a very targeted approach, focusing on low-risk retail property acquisitions. For starters, it only buys freestanding properties net leased under long-term agreements. That lease structure generates very steady cash flow because the tenant is responsible for real estate taxes, building insurance, and maintenance. 

Further, it focuses on owning properties leased to retailers less likely to face disruption from a recession or e-commerce. For example, its third-quarter acquisitions included off-price retail, convenience stores, tire and auto service, home improvement, auto parts, grocery, and general merchandise. Also, 30.3% of the leases acquired by rent in the quarter were ground leases, which generate bond-like income streams.

Finally, Agree Realty focuses on tenants with investment-grade credit ratings. Overall, 69.8% of this year’s acquisitions by annualized base rent were with investment-grade tenants, suggesting they have the financial flexibility to meet their financial obligations (i.e., make their rental payments) even during a recession.

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