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At the core, Agree Realty (NYSE: ADC) and Realty Income (NYSE: O) are very similar real estate investment trusts (REITs). But they aren't interchangeable. Here's why some investors will like Agree, while others will favor Realty Income. It all boils down to the growth these two monthly dividend payers can offer to shareholders.
Why go with Realty Income?
A net lease requires tenants to pay most property-level operating costs. Net lease assets are usually occupied by a single tenant, so the risk for any individual property is very high. However, when spread over a large portfolio, the risk is rather low because of diversification and the fact that the landlord avoids most of the variable costs associated with its properties. Realty Income is the largest net lease REIT, with more than 15,400 properties.
It has an investment grade rated balance sheet. Its portfolio is diversified geographically across North America and Europe. While it's heavily focused on retail properties (around 73% of rents), those assets tend to be highly liquid and easy to re-lease or sell, if needed. The rest of the portfolio, meanwhile, adds some diversification, with industrial assets and a smattering of more unique properties like casinos, vineyards, and data centers.
The company is, basically, a slow and steady giant, built from the ground up to be a reliable dividend stock. To that point, it has increased its dividend every year for three decades at a compound annual rate of 4.3%. Realty Income isn't the kind of REIT that's going to excite you, but it is one that will reliably pay you month in and month out. Add in the lofty 5.8% dividend yield on offer today, and you can see why income-focused investors would want to add this stock to their portfolios.
Why go with Agree Realty?
That said, a slow and steady high-yield REIT isn't going to be a good fit for all investors. That's where Agree Realty offers an alternative. The company is solely focused on the retail sector and is much smaller, with "just" 2,370 properties. That's more than enough for diversification purposes, but it is clearly a much smaller business than Realty Income -- and that's the point.
While Realty Income has to make massive investments in new assets each year to grow, even at a slow pace, Agree Realty can grow rapidly with a relatively small level of investment. It's simply easier to grow from a smaller base. That has been a material benefit to shareholders who are focused on dividend growth. Over the past decade, Agree's dividend has grown by around 66%, versus roughly 40% for Realty Income.