1 Great dividend stocks 20% off to buy and hold forever

This high-yield stock is still about 20% off its 2022 highs, but long-term growth opportunities remain intact.

I agree, Real (ADK -1.70%) is a large real estate investment trust (REIT) with a dividend yield of 4.9%. For comparison, this is well above the 1.3% you can get from S&P500 index and 4.1% of the average REIT, using Vanguard Real Estate Index ETF (VNQ 0.34%) as an industry representative. There is a good reason for Agree’s high yield, but there is also a long-term growth story with plenty of room to grow.

I agree, Realty likes simple black boxes

Agree Realty focuses on single-tenant retail properties located in the United States. These assets are generally quite similar to each other, which makes them relatively easy to buy and sell. This makes it relatively easy to replace a tenant if a vacancy occurs. There is a large retail real estate market in the United States, so the type of real estate is also quite fluid. While it is true that each location is high risk because it is occupied by only one tenant, Agree owns over 2,100 properties. This is enough diversification to offset the risk posed by individual properties.

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Adding a net lease structure to the picture makes Agree’s business model even more attractive. This is because REIT tenants bear most of the operating costs at the property level. While this is a huge oversimplification, Agree essentially has to just sit back and collect rent, focusing most of its efforts on finding new properties to buy. Of course, Agree isn’t the only company using this model, but the company has grown relatively rapidly over the past decade.

For comparison, Agree’s dividend has been increased every year for about a decade. That said, it was cut in 2011 due to the Great Recession related to the bankruptcy of an anchor tenant. However, at the time, Agree owned less than 100 properties and was therefore a completely different company. More important when it comes to dividends is the growth achieved by Agree, with annual dividend growth of almost 6% over the last decade. That may not sound like a huge number, but it’s quite attractive for a net-lease REIT.

Why are investors negative about Agree Realty?

The story with Agree is quite good. So why is the REIT share price down approximately 20% from its 2022 highs? Before we get into the explanation, it’s worth pointing out that the price decline has pushed Agree’s dividend yield to 4.9%, the highest end of its yield range over the last decade. The stock appears to be oversold.

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The good news is that the problem isn’t actually with the Agree option. The problem is that interest rates have increased dramatically. This increases costs for REITs, which typically rely heavily on debt to finance real estate acquisitions. Don’t follow the crowd on Wall Street and don’t get nervous – real estate markets adjust to changes in interest rates. It just takes time. If you’re thinking in terms of decades rather than days or weeks, Agree should probably be on your wish list if you’re focused on dividend growth.

I agree it’s not dead money

Although Agree is in a more challenging operating environment, it acquired 31 properties and completed two development projects in the first quarter of 2024. There are also 14 development projects in preparation. In other words, Agree is still looking for ways to grow. So not only are you buying a REIT that appears to be on sale, but you can also get attractive dividend income from a still-growing net leasing company.

Once the real estate market balances out, Wall Street will likely begin to appreciate what will likely be a very long runway of growth here. Please note that the largest company in the industry owns over 15,000 properties.

Reuben Gregg Brewer has no position in any of the companies mentioned. The Motley Fool holds positions in and recommends the Vanguard Real Estate ETF. The Motley Fool has a disclosure policy.