Agree Realty, a real estate investment trust (REIT), has established itself as a remarkable source of dividends over the past decade. Its dividend has risen by a compound annual rate of 5.6% during this time frame, while it changed its distribution frequency from quarterly to monthly, making it more appealing to investors looking for a consistent stream of passive income. Despite the REIT’s prosperity, its stock price has dropped approximately 25% since reaching a peak in 2022. This decline has led to an elevated dividend yield of 5.1%, which surpasses the S&P 500’s 1.4% dividend yield. As the REIT continues to thrive, it’s an optimal stock to purchase and keep for potential lifelong revenue.
Higher interest rates have negatively affected Agree Realty’s stock prices during the previous couple of years. Interest rates impact the value of property, causing income yields to rise above lower-risk alternatives such as bonds. Additionally, these rates make it more expensive for REITs like Agree Realty to borrow funds for fresh investments. Although higher interest rates pose a challenge for the REIT, it’s still growing. In its most recent quarterly report, the business increased its adjusted funds from operations (FFO) per share by 4.6% compared to the previous year’s equivalent period.
Agree Realty has acquired roughly $1.2 billion in properties throughout 2023 and invested around $150 million in development initiatives. These investments allowed the REIT to increase its monthly dividend payment by 2.9% over the course of the last year. The REIT has continued to identify enticing investment possibilities this year, having spent $140 million on 50 retail net lease properties during the first quarter of 2024. Of this, the REIT spent $123.5 million to acquire 31 properties, purchasing them at a weighted average capitalization rate of 7.7%. By taking advantage of lower real estate values, the REIT managed to secure greater income yields.
Agree Realty maintains a robust financial foundation, allowing it to continue expanding its real estate portfolio. The REIT has a dividend payout ratio that is conservatively calculated for a REIT (72% of its adjusted FFO at the end of the first quarter). This enables the REIT to preserve substantial free cash flow to finance new investments. Moreover, the REIT has a well-fortified balance sheet, with a leverage ratio of 4.3 times at the end of the first quarter, after adjusting for the impact of unsettled forward equity transactions. The REIT has no debt obligations due before 2028 and finished the quarter with more than $920 million in total liquidity, comprising cash, outstanding forward equity, and accessibility to its revolving credit facility.
The REIT believes that it can acquire around $600 million in real estate this year, despite persistent interest-rate challenges. These efforts should result in an incremental increase in adjusted FFO, ranging from $4.10 to $4.13 per share, which translates to around 4%-5% growth compared to the previous year’s figure. The REIT can achieve this expansion without diverging from its fundamental strategy or enhancing risks.
Because of the company’s prudent strategy and solid financial situation, it’s situated to continue developing in virtually any setting. Furthermore, it has developed connections with numerous top-notch retailers, providing further growth prospects. The REIT may acquire their existing properties through sale-leaseback deals and offer them financing for development initiatives.
The REIT’s management has performed admirably in augmenting its dividend over the preceding decade. Its methodical approach has resulted in a top-flight portfolio protected by a formidable balance sheet. This strategy permits the REIT to continue expanding in almost any circumstance. Combined with its vast growth horizon and attractive present valuation, Agree Realty seems like a perfect stock to acquire and retain for an extensive period of time.
However, prior to investing in Agree Realty, it’s crucial to take into account the following points:
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