Agree Realty's 6.11% Yielding Preferred Shares: A Rare High-Yield Anchor Amid Rising Rates

In a rising interest rate environment where high-yield opportunities are scarce, Agree Realty’s Series A preferred shares (ticker: ARCTA) stand out as a compelling income play. Offering a 6.11% forward yield and anchored by a robust retail portfolio, these shares present a rare blend of income security and defensive appeal. Let’s dissect why this could be one of the year’s most strategic income investments.

The Dividend Structure: Fixed Rate, High Yield, and a 2025 Maturity

Agree Realty’s Series A preferred shares boast a fixed dividend rate of 5.925% (based on the $25 par value), translating to an annual dividend of $1.48 per share. With the shares currently trading at a discount to their $25 liquidation value—$23.80 as of April 2024—this creates a 6.11% forward yield, a premium to the broader preferred stock market. The shares mature on May 15, 2025, at which point investors will receive the full $25 par value per share.

This fixed-rate structure is a lifeline for income investors: while variable-rate securities struggle in volatile rate environments, Agree Realty’s preferreds offer predictable payouts until maturity. Even as the Fed’s rate hikes pressure bond prices, the Series A’s proximity to maturity (just over a year away) limits its duration risk compared to perpetual preferreds.

Why Agree Realty’s Portfolio Supports Dividend Reliability

The 2,422-property portfolio underpinning Agree Realty’s common shares (ARCT) is a critical factor in sustaining the preferreds’ appeal. The portfolio is 95% occupied by credit-rated tenants like Walgreens, 7-Eleven, and Starbucks, ensuring steady rental income. Crucially, Agree Realty’s 2.4% common dividend growth over the past year signals financial discipline and balance sheet strength.

While REIT preferred stocks often face scrutiny for their sensitivity to rising rates, Agree Realty’s diversified retail exposure—focused on essential services and e-commerce-resistant formats—offers a defensive moat. Unlike mall-heavy peers, its properties are net-lease arrangements where tenants cover operating costs, reducing Agree Realty’s cash flow volatility.

Undervalued Compared to Peers: A Contrarian Opportunity

In a sector where REIT preferreds trade at narrow spreads to Treasury yields, Agree Realty’s Series A offers a standout margin. For instance, Retail Properties of America’s Series D preferreds, yielding 5.5%, trade at a premium to their liquidation value, while Agree Realty’s shares trade at a discount. This discrepancy suggests the market underappreciates the 2025 maturity’s safety and the company’s tenant stability.

Risks and the Case for Immediate Action

No investment is without risk. The Series A’s price sensitivity to interest rate movements remains a concern: if yields rise further, the share price could dip below $23.80. However, with maturity just over a year away, the $1.20 per-share accretion to par value by May 2025 provides a floor. Investors purchasing now can lock in a 6.11% yield to maturity, with the $25 liquidation price acting as a guarantee.

Final Call: Seize the Last Chance for This Yield

Agree Realty’s Series A preferred shares are a limited-time opportunity to capture a 6.11% yield with minimal duration risk. With a proven income generator like Agree Realty’s portfolio backing the dividend and the liquidation value nearing, this is a rare chance to park capital in a high-yield security without overextending on duration.

For income-focused investors, the Series A’s combination of fixed-rate certainty, portfolio stability, and maturity-anchored pricing makes it a standout choice. Act swiftly: as the May 2025 maturity approaches, the yield will compress toward the fixed rate, leaving little room for upside.

This analysis does not constitute financial advice. Always consult a professional before making investment decisions.