Better Monthly Dividend Stock: Realty Income vs. Agree Realty

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.

Where to invest $1,000 right now? Our analyst team just revealed what they believe are the 10 best stocks to buy right now. See the 10 stocks »

Image source: Getty Images.

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.

If you aren't trying to live off the income your portfolio is generating today, Agree likely has a very long runway for dividend growth ahead before it catches the scale of Realty Income. That said, there's a caveat here. Agree Realty's dividend yield is 4.1% or so. So investors are already pricing in a positive outcome on the growth front. Buying Agree over Realty Income probably only makes sense if you don't need the income (and can thus dividend reinvest), and you are thinking in decades and not days or years.

The choice boils down to growth or current income

Realty Income and Agree Realty are really managed to suit the needs of different investors. If you're a dividend investor looking to maximize the income your portfolio generates while taking on as little risk as possible, you will prefer Realty Income. If you're more focused on dividend growth, the answer here will probably be Agree Realty. The good news, however, is that both are well-run REITs, and neither one is likely to be a bad call.

Don’t miss this second chance at a potentially lucrative opportunity

Ever feel like you missed the boat in buying the most successful stocks? Then you’ll want to hear this.

On rare occasions, our expert team of analysts issues a “Double Down” stock recommendation for companies that they think are about to pop. If you’re worried you’ve already missed your chance to invest, now is the best time to buy before it’s too late. And the numbers speak for themselves:

• Nvidia: if you invested $1,000 when we doubled down in 2009, you’d have $323,686!*
• Apple: if you invested $1,000 when we doubled down in 2008, you’d have $44,026!*
• Netflix: if you invested $1,000 when we doubled down in 2004, you’d have $545,283!*

Right now, we’re issuing “Double Down” alerts for three incredible companies, and there may not be another chance like this anytime soon.

Learn more »

*Stock Advisor returns as of February 3, 2025

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.