Agree Realty's Dividend Growth Strategy and Its Implications for Income Investors in 2026

For income investors, real estate investment trusts (REITs) have long been a cornerstone of diversified portfolios, offering a blend of steady dividends and capital appreciation. Among these, Agree Realty Corporation (ADC) stands out for its disciplined approach to dividend growth and its strategic focus on retail net-lease properties. As 2026 approaches, the question of whether ADC's dividend strategy remains sustainable-and how it might evolve-demands careful scrutiny.

Dividend Payout Ratios and FFO Analysis

Agree Realty's dividend payout ratios have historically hovered between 72% and 74% of both Core Funds from Operations (FFO) and Adjusted FFO (AFFO) per share, as of the six months ended June 30, 2025. This conservative approach suggests a buffer for unexpected downturns, a critical feature for REITs operating in a sector sensitive to interest rates and economic cycles. However, a recent report notes a forward payout ratio of 174.06% based on net income, a metric that diverges from the industry-standard FFO/AFFO framework. This discrepancy highlights the importance of context: REITs typically prioritize FFO and AFFO, which exclude non-cash expenses like depreciation, to assess dividend sustainability. By this measure, ADC's payout remains well within conservative bounds.

Historical Dividend Growth and 2026 Projections

Agree Realty has raised its dividend for 13 consecutive years, with a 5-year average growth rate of 5.20%. Its most recent increase-a 3.6% hike in 2025- brought the monthly payout to $0.262 per share. Analysts project 2026 FFO per share to reach $4.54, up from $4.31 in 2025, driven by strategic investments in retail net-lease properties. These investments, totaling $1.55 billion in 2025, have secured long-term leases (average 11.5 years) with investment-grade tenants, a strategy that should bolster cash flows and support further dividend growth.

Investment Strategy and Its Impact on FFO

The company's capital deployment plans for 2026-$1.25 billion to $1.5 billion in new investments- underscore its commitment to expanding its high-quality tenant base and extending lease terms. This approach aligns with broader REIT trends: in 2025, the sector saw a 6.2% increase in FFO and a 6.3% rise in total dividends. For ADC, the focus on retail net-lease assets, which typically offer stable, inflation-protected cash flows, positions it to weather macroeconomic volatility while maintaining its dividend trajectory.

Debt and Leverage Considerations

Agree Realty's leverage profile remains stable, with a net debt-to-EBITDA ratio of 5.1 times as of September 30, 2025. While this exceeds the industry average for some REITs, it is offset by a robust balance sheet, including $2 billion in liquidity. The company's interest coverage ratio of 2.6 times in Q3 2025 and a fixed charge coverage ratio of 4.2 times further indicate its ability to service debt without compromising dividend payments. However, investors should monitor the impact of rising interest rates on refinancing costs, particularly as ADC's total debt nears $3.4 billion.

Dividend Yield and Income Potential for 2026

With a forward dividend yield of 4.3% to 4.46%, ADC remains an attractive option for income-focused investors. The next dividend, scheduled for January 15, 2026, at $0.26 per share, reflects a 2.4% increase from the prior year. While the 174.06% payout ratio based on net income raises concerns, this metric is misleading when evaluated against FFO. Given ADC's historical FFO growth and disciplined capital allocation, the yield appears sustainable for 2026, provided the company continues to outperform its leverage metrics.

Conclusion

Agree Realty's dividend growth strategy is underpinned by a combination of conservative payout ratios, strategic investments, and a strong balance sheet. While the REIT's leverage and high net-income-based payout ratio warrant caution, its focus on FFO-aligned metrics and long-term lease structures provides a solid foundation for 2026. For income investors, ADC offers a compelling mix of yield and growth potential, though careful monitoring of interest rate trends and capital deployment will be essential to ensure long-term sustainability.