Here’s Why I’m Buying This 4%-Yielding Dividend Growth Stock That Pays a Monthly Dividend

I’ve been loading up on high-quality dividend growth stocks for more than 10 years now. And I’ll be loading up on more high-quality dividend growth stocks for the next 10+ years.

This behavior has been very rewarding. Dividend growth investing allowed me to quit my job and retire in my early 30s. And that was after starting out at nearly 28 years old.

This investment strategy radically changed my life in a very short period of time. It’s simple.

High-quality dividend growth stocks are like the golden geese that lay ever-more golden eggs. The golden geese are world-class businesses that produce ever-more profit.

And the golden eggs are the dividends these businesses pay to shareholders. Ever-more profit. Ever-more golden eggs.

And if you get yourself a large enough pile of these golden eggs, you can live off of them.

The key, as always, is loading up on the right high-quality dividend growth stocks at the right valuations. And one stock, in particular, looks compelling here.

Today, I want to tell you about a high-quality dividend growth stock that I’ve been recently buying. Ready? Let’s dig in.

The stock I’m going to tell you about has it all. Quality, growth, yield, and valuation. And that’s why I’m loading up on it.

The stock that I’ve been recently buying is Agree Realty Corporation  (ADC).

This is a US-based real estate investment trust. A REIT. They acquire and develop properties, which are then net leased to some of the best retailers in the United States.

I love REITs because they offer me the chance to own physical real estate without dealing with any of the associated headaches.

Imagine trying to produce passive income from your own real estate. You have to go out and scout rental properties. Line up the financing. Deal with renovations. Find tenants. Sign tenants. Manage payments, vacancies, problems, repairs, etc.

No, thanks. I just buy shares in REITs. When you buy shares in Agree Realty, for instance, you basically snap your fingers and instantly get exposure to a large portfolio of commercial real estate that’s already set up, financed, leased, producing income, and professionally managed.

I like a lot of things about Agree Realty. For starters, the property portfolio.

The company owns and operates a portfolio of slightly more than 1,400 properties. This is 29 million square feet of commercial real estate spread out across 47 states. But that’s not what makes it all that unique. A lot of publicly-traded REITs have large portfolios like this.

What I like about Agree Realty’s portfolio specifically is the quality of their tenants.

I mean, Agree’s tenants are some of the very best in all of American retail. I’m not talking about floundering movie theaters or third-rate grocery stores here. Their top tenant by annualized base rent is Walmart. Number two? Tractor Supply Company, which is a company that is absolutely killing it. Further down the list is Lowe’s. And then Sherwin-Williams. If you’re in retail, these are the surefire, best-in-class tenants you want. 67% of their tenantsa are investment grade.

High-quality tenants. High-quality REIT.

And quality from the ground up, literally, has allowed Agree Realty to put up some great numbers. The company’s revenue is up tenfold over the last decade. Adjusted funds from operations per share growth is running circles around some of the more mature REITs in this same space. The company posted up 9.7% YOY growth in AFFO/share for FY 2021. And management is guiding for upper-single-digit growth in AFFO/share for this year.

That kind of growth in the company’s profit per share has translated into great dividend growth.

Agree Realty has increased its dividend for 10 consecutive years, with their most recent dividend increase of 3.1% being announced only weeks ago. 3.1% isn’t much, right? Well, here’s the thing. Agree Realty tends to increase their dividend twice per year.

What’s better than a pay raise every year? Two pay raises every year.

The five-year dividend growth rate is 6.1%, so they’re right on pace. And you’re pairing that with the stock’s current yield of 4%. That’s a nice yield in this environment. It’s pretty tough to dislike a 4% yield and a 6%+ dividend growth rate. With a payout ratio of 80%, the dividend is secure.

But wait. There’s more. Agree Realty pays their dividend monthly.

Now, I’m not necessarily in the camp that thinks monthly dividends are essential in any way. If you construct a properly diversified portfolio, with different companies announcing and paying dividends at different intervals, you’re going to collect dividend income every month anyway. Monthly dividend income can be generated in a synthetic way. If you set things up correctly, there shouldn’t be a lot of lumpiness in your income stream.

That said, monthly payouts from any one company are even better. It cuts out potential lumpiness. After all, bills tend to be pretty consistent, right? The housing bill, the transportation bill, the mobile phone bill, etc. They’re relentless. So if you can line up consistent monthly dividend income against consistent monthly expenses, all the better.

You want more good news? Here you go. 

The balance sheet is fantastic for a REIT. Total liabilities of $1.8 billion match up favorably against $5.3 billion in total assets. A recent public bond offering extended maturities and reduced the average interest rate to 3.2%. They have no maturities of significance until all the way out in 2028. All of that has caught the eye of Moody’s – Agree Realty’s issuer rating got upgraded at Moody’s Investor Service to Baa1 from Baa2 with a stable outlook on March 30th.

Another thing I like about this business? Aligned incentives between management and shareholders.

There’s a lot of insider ownership here. It’s skin in the game. This means management is incentivized to do right by shareholders in a way that goes way beyond simple compensation. For example, the CEO of Agree Realty is Joey Agree.

That name ring a bell? Right. He’s the son of the company’s founder. This company is literally in his blood. He owns nearly 500,000 shares in the business. Better yet? He’s been recently buying even more shares, adding to his stake in the company. In fact, he picked up 3,300 shares over a two-day period in late March.

I’m buying this stock alongside the CEO.

I initiated my position in Agree Realty on April 12th for $68.58 per share. And I alerted my Patrons about that move in real-time over at Patreon. What’s really special about this is, Agree Realty announced a dividend increase on April 12th, only hours after I initiated my position. Talk about a nice welcome gift to a new shareholder!

I’ve added to my Agree Realty position since April 12th. And I’ll continue to acquire more shares over the coming weeks. I won’t end up with a position size anywhere near where Joey Agree is at with it, but I do find the stock very compelling here and am very pleased to own a small slice of the business.

Is this the cheapest REIT out there? No. But I think the valuation is reasonable. 

Based on the $3.51 in adjusted funds from operations per share the company produced for last fiscal year, we’re looking at a P/AFFO ratio of 20.2 on a trailing twelve months basis. And this actually comes down a bit on a forward-looking basis. That’s somewhat analogous to a P/E ratio on a normal stock. I don’t see anything egregious about that when you look at the growth and quality profile of the business.

Also, relative to itself, the stock appears to be slightly undervalued. The stock’s five-year average P/CF ratio is 21.0. The current P/CF ratio is sitting at 19.3. Relative to the cash flow multiple this stock typically commands, it’s somewhat cheap. Also, that aforementioned 4% yield is 40 basis points higher than its five-year average.

Will this business work for you as a long-term investment? That’s up to you. But I do think that most dividend growth investors who take a deep dive into the numbers will like what they see.

This REIT has strong profit and dividend growth, top-tier tenants, a great balance sheet, insider buying and ownership, a market-smashing 4% yield, and a monthly dividend. All of that comes in a package that’s reasonably valued. This stock has compounded at 13% annually since its 1994 IPO. And I think there’s a lot more where that came from.

— Jason Fieber

P.S. If you’d like access to my entire six-figure dividend growth stock portfolio, as well as stock trades I make with my own money, I’ve made all of that available exclusively through Patreon.