Is this the best monthly dividend stock in my portfolio?

Stephen Wright makes the case for Agree Realty, a monthly dividend REIT with a strong track record of rent collection, diversified tenant base, and attractive price.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

British bank notes and coins

Image source: Getty Images

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

One of the most popular REITs for investors seeking monthly dividends is Realty Income. While I like it, and I own the shares in my portfolio, I think that Agree Realty (NYSE: ADC) might actually be the best monthly dividend stock I own.

Agree Realty has a lot in common with Realty Income. Both companies focus on leasing retail properties to tenants and distributing rental income in the form of a monthly dividend. Both also target tenants that have investment-grade credit ratings. Lastly, both aim to concentrate their portfolios in areas that are should be immune to the rise of e-commerce.

Agree Realty

I think that Agree Realty has a lot of intrinsic merits as a monthly dividend stock. Two things from the company’s January 2022 investor presentation stand out to me. First, the company is in a strong financial position. Since 2016, it has been strengthening its balance sheet by disposing of properties outside of its core strengths. In doing so, the company has raised around $400m. Its financial strength is further supplemented by the fact that it has less than $100m in debt due to mature before 2025.

Second, the company’s income stream is well diversified. Agree Realty owns 1,404 retail properties in 47 US states. The company’s tenant base is also well diversified, with the largest three tenants only accounting for 15% of its overall base. This limits the risk of losing substantial income due to a particular tenant being unable to pay rent.

Risk

The biggest risk with Agree Realty as a monthly dividend stock, in my opinion, comes from the quality of its tenant base. While the company targets tenants with investment grade credit ratings, only 67% of the company’s tenant base has this rating. I’d like the number to be higher, especially with interest rates rising. Higher interest rates might increase the risk of tenants with weaker credit ratings being unable to pay their rents. 

In my view, however, this risk is reduced by the company’s strong record of rent collection. Between July 2020 and December 2021, Agree Realty collected at least 99% of its rent in every month. This indicates that the vast majority of the company’s tenants are generally reliable when it comes to paying. It also indicates that the monthly dividend is reasonably secure, which good for investors.

Insider buying

I think that Agree Realty shares trade at an attractive price today. My conviction is strengthened by the fact that insiders at the company seem to share this view. During 2021, the company’s CEO, COO, and other executives bought substantial amounts of shares for their own portfolios at prices higher than the current share price. When a company’s executives buy shares with their own money I view this as a strong sign that they have confidence in the company and view the shares as priced attractively.

The combination of an impressive record of consistent rent collection, a strong balance sheet that allows financial flexibility, and recent insider buying at levels higher than the current share price brings me to believe that Agree Realty is the best monthly dividend stock in my portfolio. I’d happily buy more today.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Stephen Wright owns shares in Agree Realty and Realty Income. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Investing Articles

A £10,000 investment in Nvidia stock 6 months ago is now worth…

Nvidia stock's shown a lot of volatility for a mega-cap company in recent weeks. Dr James Fox explores how an…

Read more »

Investing Articles

4 reasons Ferrari could continue to be a stock market winner

The global luxury goods market may have struggled in recent years, but you wouldn’t guess that from Ferrari’s soaring stock.

Read more »

Investing Articles

5 perfect starter stocks to consider for a Stocks and Shares ISA in 2025

Wondering which shares to buy for a newly opened Stocks and Shares ISA? Our writer thinks these five investments are…

Read more »

Row of terrace houses.
Investing Articles

Thinking about buy-to-let? Consider these UK stocks instead

Owning UK property stocks could be a better way to invest in buy-to-let, though there are drawbacks. Royston Wild explains.

Read more »

Investing Articles

Here’s a plan to target £7,500 a month in passive income

This writer outlines a roadmap that someone could consider taking to try and aim for a substantial future passive income…

Read more »

Young female hand showing five fingers.
Investing Articles

5 FTSE 250 stocks Fools are backing for promotion to the FTSE 100 this year

Can Vistry make an imminent return from the FTSE 250? One Fool thinks so -- read on to find out…

Read more »

Investing Articles

How much would an investor need in a Stocks and Shares ISA to earn a £1,000 monthly passive income?

Christopher Ruane digs into some details as to how an investor could use a Stocks and Shares ISA to enjoy…

Read more »

Stacks of coins
Investing Articles

I asked ChatGPT for the best UK penny stocks to buy and it said this…

This writer turned to an artificial intelligence chatbot to help him find penny stocks worth considering in the stock market…

Read more »