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.
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.
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.
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.