Yield vs. Growth in Net Lease REITs: Realty Income (O) vs. Agree Realty (ADC)

In the competitive landscape of net lease REITs, investors are often faced with a choice: prioritize steady income through dividends or seek capital appreciation via growth-oriented strategies. Realty Income Corporation (NYSE: O) and Agree Realty Corporation (NYSE: ADC) exemplify this divide. Realty Income, the "Monthly Dividend Company," offers a high yield and rock-solid stability, while Agree Realty delivers faster dividend growth and expansion potential. This analysis dissects their financial profiles to help investors decide which aligns best with their goals.

The Stability of Realty Income: A Higher-Yielding Anchor

Realty Income's $50.9 billion market cap and 15,627-property portfolio (spanning eight countries) underscore its dominance in the net lease sector. Its 6% dividend yield—backed by an 110-quarter streak of dividend increases—is a magnet for income seekers. Key metrics reinforce its reliability:
- AFFO Growth: 2.9% in Q1 2025, with guidance of $4.22–$4.28 per share for 2025.
- Leverage: A net debt/EBITDA ratio of 5.4x, balanced by $2.9 billion in liquidity.
- Diversification: 98.5% portfolio occupancy, with exposure to sectors like industrial, gaming, and European retail parks.

The company's global reach, conservative payout ratio (75.1% of AFFO), and focus on long-term leases (8.0-year average) make it a defensive play. While its dividend growth (3.4% Y/Y) is modest, Realty Income's stability is unmatched.

Agree Realty: Growth at a Lower Yield, Higher Upside

Agree Realty, with a $8.29 billion market cap and 2,422 U.S.-centric properties, trades on growth. Its dividend yield is lower (estimated ~4.5% based on its $3.072 annualized dividend post-Q1 2025), but its trajectory is compelling:
- AFFO Growth: 3% in Q1 2025, with 2025 guidance raised to $4.27–$4.30 per share—a 26% increase in investment deployment ($1.3B–$1.5B) over 2024.
- Leverage: A leaner 3.4x net debt/EBITDA ratio and $1.9 billion in liquidity provide flexibility for expansion.
- Focus: Aggressive U.S. net-lease acquisitions, with 99.2% portfolio occupancy and a 103.9% rent recapture rate.

Agree's smaller scale allows faster scaling. Its dividend growth (2.4% Y/Y in Q1, with April's increase to $0.256/month) suggests a compounding advantage over Realty Income's slower trajectory.

The Trade-Off: Yield vs. Growth

• Choose Realty Income if: You prioritize income stability and a high yield. Its fortress balance sheet and global diversification reduce risk, making it ideal for retirees or conservative investors.
• Choose Agree Realty if: You seek long-term capital appreciation and can tolerate moderate yield in exchange for faster dividend growth. Its U.S. focus and aggressive reinvestment could outperform over 3–5 years.

Historically, this strategy has shown promise. A backtest of buying both REITs on their ex-dividend dates and holding until the next earnings announcement from 2020 to 2025 reveals distinct performance patterns. Realty Income averaged a 0.46% price increase on ex-dividend dates, while Agree Realty outperformed with a 1.77% gain. These results underscore Agree's growth potential in the short term, complementing its long-term dividend trajectory.

Key Risks and Considerations

• Realty Income: Exposure to global markets (e.g., European retail parks) introduces currency and geopolitical risks. Its higher leverage (vs. Agree) could strain margins in a downturn.
• Agree Realty: Overreliance on U.S. retail and its smaller size mean less cushion during economic shocks. Its AFFO growth hinges on executing its $1.5B investment target.

Final Call to Action

• Income-focused investors: Buy Realty Income (O) for its 6% yield and 30-year dividend growth track record.
• Growth-oriented investors: Allocate to Agree Realty (ADC) for its 26% investment growth guidance and 2.4% dividend uplift potential.

The choice is clear: Realty Income is the income anchor, Agree Realty the growth engine. Align your portfolio with your priorities—and act before valuation gaps narrow further.

Disclosure: This analysis is for informational purposes only and not a recommendation. Investors should conduct their own due diligence.