There are many ways to start collecting passive income. One of the simplest is to invest money in real estate investment trusts (REITs), entities that Congress created in 1960 to allow anyone to invest in income-generating commercial real estate. While most REITs pay dividends, allowing their shareholders to earn passive income, some are better suited than others for income generation.
A REITs made for those looking for passive income is Accept real estate (CAN 1.94%). Here’s what makes it a great option.
Made for income seekers
In January 2021, Agree Realty joined a handful of companies paying a monthly dividend instead of following the traditional quarterly schedule. This makes it even more suitable for generating passive income, as it better aligns income frequency with expenses.
Another factor that makes Agree Realty ideal for income generation is its dividend yield. At the current share price and dividend payout, Agree Realty is yielding 3.9%. This is above the REIT industry average of 3% and the S&P500 Dividend yield of 1.5%. This dividend yield implies that every $1,000 invested in Agree Realty will generate approximately $39 in annual passive income.
Agree Realty also has a long history of growing its Dividend payment. The REIT has increased it by 7.8% over the past year. Meanwhile, the payout has grown at a compound annualized rate of 5.5% over the past decade.
What makes Agree Realty a great income stock?
Agree Realty has built a sustainable portfolio of income-generating independent commercial properties to support its monthly dividend. The REIT relies on three factors that allow its portfolio to produce very stable rental income:
- Resilient industries: Agree Realty is focused on owning retail leased properties that are resilient to e-commerce disruption and recessions. Its major tenants are grocery stores, home improvement stores, dollar stores, convenience stores, and automotive service and parts retailers.
- High–quality tenants: The REIT is focused on leasing properties to retailers with investment grade credit ratings (67.8% currently have this distinction). This designation means they must have the financial strength to meet their financial obligations if economic conditions deteriorate.
- Stable rental structures: The REIT uses two lease structures: Triple net (NNN) and land leases. NNN leases make the tenant responsible for covering maintenance, building insurance, and property taxes, while land leases cover the land under a building.
This investment strategy enables the REIT to generate very stable rental income in almost all market environments. This helps put the dividend on a solid footing.
Meanwhile, Agree Realty has a very conservative financial profile. The REIT pays out only about 70% of its major funds from operations (FFO) in the form of dividends. This leaves him with a comfortable cushion while allowing him to conserve cash to acquire additional income-generating properties. Agree Realty also has a strong investment grade track record. This allows it to borrow money cheaply to finance acquisitions.
Finally, the REIT still has a lot of growth to come. Its existing leases all feature annual contract rate increases, providing the company with steady rental growth. Meanwhile, it plans to acquire $1.4 billion to $1.6 billion in revenue-producing retail properties this year. That’s an increase from last year’s tally of $1.39 billion. The company also finances new developments. Agree Realty currently has 18 projects underway, which will cost $53 million. These three growth engines will provide Agree Realty with steadily increasing revenues, allowing the REIT to continue to increase its monthly dividend going forward.
An ideal passive income producer
Agree Realty has a lot of great features. The REIT pays a monthly dividend with an above-average yield, backed by high-quality income-producing real estate and a top-notch financial profile. This gives him the financial flexibility to continue growing his portfolio and payouts. These features make Agree Realty a great option for those looking to start earning passive income.