Investors Weigh Options Between Agree Realty and Realty Income

The S&P 500 (SNPINDEX: ^GSPC) currently offers a yield of 1.3%. In contrast, the average real estate investment trust (REIT) yield is approximately 4.1%.

Investors are comparing net lease REIT Agree Realty (NYSE: ADC), which has a yield of around 4.1%, and Realty Income (NYSE: O), offering a higher yield of 5.8%. However, yield is only one factor to consider.

Understanding the Business Models

Both Agree Realty and Realty Income focus on net lease properties. These properties typically have a single tenant responsible for most operating costs, allowing landlords to avoid maintenance burdens. This setup reduces risk for property owners.

While individual properties have high risk due to their reliance on a single tenant, a diverse portfolio can mitigate this risk. Realty Income is the largest net lease REIT with over 15,600 properties, while Agree Realty has about 2,400 properties.

Agree Realty primarily invests in U.S. retail assets, whereas Realty Income’s portfolio includes approximately 75% retail, alongside industrial and other assets. Realty Income’s diversification includes investments in sectors like vineyards and data centers, plus properties in Europe.

Yield versus Growth Potential

Agree Realty’s yield stands at 4.1%, aligning with the industry average. In contrast, Realty Income’s 5.8% yield indicates a premium price for Agree Realty.

Realty Income is viewed as a bellwether in the net lease sector. For investors prioritizing income, Realty Income appears to be the preferable option.

However, Realty Income is projecting adjusted funds from operations (FFO) growth of only 2.1% at its high estimate, compared to Agree Realty’s expected growth of 3.6% by 2025. If dividend growth is your goal, Agree Realty may be a better choice.

Over the past 30 years, Realty Income has raised its dividend by an average of 4.3% yearly, but lower FFO growth may lead to smaller future increases. Conversely, Agree Realty has increased its dividend by about 5.5% annually over the last decade.

Selecting Your Investment Focus

Both Realty Income and Agree Realty are strong net lease REITs, but they serve different investor needs. Realty Income excels in yield and diversification, while Agree Realty is preferable for those seeking faster dividend growth.

Investing in Realty Income: What’s the Strategy?

Before purchasing shares of Realty Income, note that leading analyst teams have identified other potentially lucrative investment opportunities.

The Motley Fool suggests exploring alternatives that may yield higher returns than Realty Income.

Reuben Gregg Brewer has positions in Realty Income. The Motley Fool has positions in and recommends Realty Income. The Motley Fool has a disclosure policy.

The views expressed belong to the author and do not necessarily reflect those of Nasdaq, Inc.