Investing in a dividend stock can be a really good way for investors to boost their income. I own several in my own portfolio.
If I was just starting out without any savings, though, some of the stocks I’d buy are ones that are in my portfolio. Others, though are different.
In particular, there’s one dividend stock that I don’t own that I’d start with today. The stock is Agree Realty (NYSE:ADC).
Agree Realty
Agree Realty is a real estate investment trust (REIT). That means that it makes money by leasing property to tenants and distributing its earnings as dividends to its shareholders.
The company focuses on retail properties. And it pays its dividends monthly, meaning that if I bought shares today, I wouldn’t have to wait too long before my first payment came in.
So far, the company sounds a lot like Realty Income (NYSE:O). And it’s true that they have a lot in common.
Beyond monthly dividends and a retail portfolio, both attempt to limit their risk in the same way. They each focus on quality tenants that are immune to the threat from e-commerce.
When I was adding REITs to my portfolio, I decided Realty Income shares were the more attractive opportunity. But the situation would be different if I were starting today.
Advantages
The biggest advantage that Agree Realty has over Realty Income is its size. With a market cap of $6.64bn (compared to $42.6bn), Agree Realty is much smaller.
That makes it much easier for Agree Realty to grow its property portfolio and boost its dividend in a meaningful way. And the recent history bears this out.
Over the last five years, Realty Income has grown its dividend by an average of 3.5% per year. But Agree Realty has achieved annual dividend growth of 6.5% on average.
The stock has a dividend yield of 3.9% (compared to 4.4% for Realty Income). But over the long term, I think that the smaller company’s growth prospects will prove decisive.
Interest rates
One thing that I’d want to keep an eye on with this stock is interest rates. I see rising rates as the biggest obstacle to significant investment returns from Agree Realty.
Higher interest rates might cause the share price to fall as investors find easier returns in cash and bonds. And it might weigh on the value of the company’s portfolio if the property market drops.
Neither is a significant concern to me, though. I’d look to use lower share prices to boost my investment at more attractive rates of return, and falling property prices would allow the business to do the same thing.
What would be a concern to me is the possibility of rental income dropping. But there doesn’t seem to be any sign of this — the company’s rent collection has been consistently strong.
If I had no savings and was starting my investment journey today, I’d start by getting enough cash on hand to see me through any emergencies. Then I’d buy shares in Agree Realty and start collecting monthly dividends.
