Agree Realty: A Steady Dividend Grower Amid Rising Rates

Agree Realty (ADC) has announced another dividend increase, marking its consistent commitment to shareholder returns even as the Federal Reserve tightens monetary policy. This article explores whether the company's dividend growth is sustainable and how its portfolio is positioned to withstand rising interest rates—a critical concern for income investors.

Dividend Growth: A Disciplined Approach to Rewarding Shareholders

Agree Realty has increased its dividend for the 10th consecutive year, with the latest raise bringing its annualized common stock dividend to $3.072 per share as of April 2025—a 2.4% increase over 2024 levels. This growth is underpinned by strong fundamentals: the dividend payout ratio stands at 72%–73% of AFFO (Adjusted Funds from Operations), well within the 60%–80% range that institutional investors typically consider sustainable.

The company's 2025 AFFO guidance of $4.27–$4.30 per share provides ample cushion for further dividend hikes. Management's disciplined capital allocation—prioritizing dividends while maintaining a conservative leverage profile—reinforces confidence in its ability to sustain growth.

Debt Structure: A Fortress Balance Sheet in a Rising Rate Environment

Agree Realty's balance sheet is a standout feature in an era of rising rates. As of December 2024, its proforma net debt to recurring EBITDA ratio was 3.4x, a conservative level that leaves ample room for borrowing costs to rise without straining liquidity. Key debt-management strategies include:

1. Fixed-Rate Debt Dominance: Over $2.2 billion in senior unsecured notes carry fixed rates, such as the 2034 notes at 5.65%, which lock in borrowing costs for nearly a decade.
2. Extended Maturities: Its $1.25 billion revolving credit facility was extended to 2029, reducing near-term refinancing risks.
3. Robust Liquidity: Over $2 billion in total liquidity (including $1.1 billion in undrawn credit and $919 million from forward equity) acts as a buffer against rate volatility.

The 4.4x fixed-charge coverage ratio further underscores its ability to meet interest obligations comfortably. These metrics, combined with an upgraded BBB+ credit rating, position Agree Realty to navigate higher rates without diluting shareholder returns.

Portfolio Resilience: Long-Term Leases Anchor Income Stability

Agree Realty's portfolio is structured to insulate income from economic shocks. Key strengths include:

• Long Lease Durability: A weighted-average remaining lease term of 8.0 years ensures steady cash flows. Over 68% of annualized base rent comes from investment-grade tenants like Walmart, Tractor Supply, and Dollar General, reducing default risk.
• Ground Lease Stability: This segment contributes 10.6% of ABR with a 9.5-year lease term and 100% occupancy, offering a low-turnover asset class.
• Proactive Renewals: In Q1 2025 alone, the company renewed 584,000 sq ft of leases, including major deals with Walmart and Home Depot. This activity mitigates near-term expirations (just 0.9% of ABR in 2025).

Even as lease expirations rise in the 2029–2030 timeframe, the staggered maturity profile and high tenant quality suggest minimal risk of sudden income drops.

Investment Thesis: A Buy for Income Investors

Agree Realty's combination of dividend sustainability, fortress balance sheet, and resilient portfolio makes it a compelling income play. Key takeaways:

• Dividend Yield: At recent prices (~$60 per share), the dividend yields ~5.1%, above the S&P 500 average and competitive with high-quality REITs.
• Upside Catalysts: The $1.3–$1.5 billion 2025 investment guidance targets accretive acquisitions and developments, which could further grow AFFO and dividends.
• Risk Mitigation: Its low leverage, diversified tenant base, and long leases minimize exposure to retail sector headwinds.

Risk Considerations: While Agree Realty's strategy is robust, prolonged economic weakness or a severe rate shock could test tenant solvency. However, its focus on investment-grade tenants and geographic diversification (no single state exceeds 9% of ABR) limits such risks.

Conclusion: A Dividend Grower for All Seasons

Agree Realty exemplifies the traits income investors seek: consistent dividend growth, prudent capital management, and a portfolio engineered to thrive in challenging environments. With a dividend yield above 5%, a fortress balance sheet, and a track record of executing through cycles, this REIT is a top choice for portfolios seeking stability and income.

Rating: Buy
Price Target: $65–$70 (reflecting 15–20x 2025 AFFO estimates).