Agree Realty: A Top Dividend Stock To Buy Before The Fed Cuts Rates

seekingalpha03-25

The window of opportunity to buy higher yielding dividend stocks is closing as the Fed plans to lower interest rates.Agree Realty is a strong buy with a track record of dividend growth and top-rated ...

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For this reason, I am trying to focus on lessening my reliance on the money market funds I own for yield and moving more of that money into high quality dividend stocks that will generate strong levels of income for the foreseeable future. Investors who stay too long at the money market \"party\" will probably find themselves earning far less in terms of yield in the next year or two. But they also are likely to miss the big potential gains that dividend stocks offer since these stocks will become more valuable in a lower rate environment. On March 20, 2024, the Federal Reserve released updated projections (the Fed dot plot), and this now indicates a 2.25 point drop in the Fed Funds rate by the end of 2026. This would lower the Fed funds target rate from the current range of 5.25% to 5.5%, to a range of 3% to 3.25%, by the end of 2026. That's a big difference in yield (nearly a 40% drop), so it makes sense that many dividend stocks could be poised to offer capital gains to investors as rates plunge. Right now, money market funds are offering a yield of over 5%, and that is competition for dividend stocks. However, when money market fund rates potentially drop by 40% as well, dividend stocks will likely rise in value. As investors become hungry for yield again, they will be likely to pay more for dividend stocks. There's about $6 trillion in money market funds and the cash parked in these types of funds can move quickly into other assets when the yield falls. With all of this in mind, I think Agree Realty (NYSE:ADC) shares are a strong buy right now, (especially after a recent pullback), so let's take a closer look: Agree Realty is a popular dividend stock for many REIT investors. This company has a long track record, and it has many top-rated tenants leasing its properties. This includes names like Costco (COST) and AutoZone (AZO). This company went public in 1994 and it has generated an 11.8% compound average annual total return. The dividend has grown 6.1% on average annually for the past 10 years. As shown below, Agree Realty has been outperforming peers, when considering a number of key metrics: Agree Realty Corporation The Chart As the chart below shows, this stock bottomed out in November 2023, at around $52 per share. It then surged to over $63 per share by early 2024, thanks in part to the Fed announcing that it would stop raising interest rates. After hitting recent highs of about $63 per share, the stock has experienced a pullback to the $55 range and I think this is an ideal buying opportunity. The 50-day moving average is around $58 per share and the 200-day moving average is about $59 per share. I believe the stock could be poised to bounce back to these key support levels in the near term and then continue to rise as interest rates drop over the next couple of years. StockCharts.com The Dividend Agree Realty pays a monthly dividend of 24.7 cents per share. This provides a yield of around 5.3%. This company has been raising the dividend for the past few years and as previously stated above, the dividend has grown at a pace of 6.1% annually for the past ten years. The dividend appears stable and likely to grow over time, especially since it is well-covered by earnings estimates of about $4 per share in FFO. Recent Financial Results And Earnings Estimates Earnings for Q4 came in at $1 in FFO per share, with revenues at just over $144 million. The company updated a few data points in the Q4 release: As of December 31, 2023, the portfolio consisted of 2,135 properties located in 49 states. The portfolio had a 99.8% leased (occupancy) rate with a weighted average remaining lease term of 8.4 years. Analysts expect FFO of $4.07 per share for 2024, on revenues of just over $614 million. Growth is expected for 2025, with estimates for $4.23 in FFO per share on revenues of about $681 million. For 2026, estimates are at $4.37 in FFO per share, with revenues coming in at $792 million. The company has a strong balance sheet with over $1 billion in total liquidity, which keeps it positioned to make additional property purchases as well as giving it flexibility to raise the dividend. Here's My Buying Strategy And Price Target I have been buying shares on the recent pullback and will continue to add more at times of weakness in the share price. If the Fed Funds rate and money market rates drop to the low 3% level in 2026, then I believe it would be possible for Agree Realty shares to yield about 4%. This would still be competitive with money market funds and it offers investors the potential for dividend increases. With the dividend totaling about $3 per share on an annual basis, a 4% yield could suggest a price target of $75 per share. Agree Realty shares traded for about $80 in 2019 and in 2022, so a $75 price target would not even be taking it to those fairly recent highs. If Agree Realty reaches my price target of $75 over the next couple of years, this would represent a gain of about 35%. When you add the dividend yield of 5.3% to this for each of the two years that brings another 10.6% in potential gains for a total (when including potential capital gains and dividends) of 45.6%. This would be a potential 22.8% total return on an annual basis. What I Like About Agree Realty I like that it offers a solid yield of over 5%, and that it pays shareholders monthly. I also like that multiple insiders have recently been buying shares. This stock appears to offer strong upside potential over the next couple of years as rates are expected to drop. It also offers the continued potential for increased profits which can in turn, allow the dividend to be raised. What I Don't Like About Agree Realty If inflation starts trending up again, we could be in for a change in the Fed's interest rate plans. This could lead to a higher for longer interest rate policy and that could send Agree Realty's stock down. A recession could impact the credit quality for some of its tenants and also potentially lower occupancy rates. In Summary  There is a window of opportunity to lock in high yields with many high quality dividend stocks before the Fed raises rates. With a current yield of about 5.3%, this REIT is already attractive and competitive when compared to money market funds. Based on my $75 price target and the generous dividend, I estimate total annual returns of 22.8% for each of the next two years. When and if it reaches $75 per share, I would probably be a seller.","kind":null,"is_publish_news":null,"is_publish_highlight":null,"is_publish_live":null,"is_publish_wemedia":null,"editions":null,"symbols":[],"gpt_button":1},"commentList":[],"isCommentEnd":true,"newsSizeData":{"likeSize":0,"commentSize":0,"repostSize":0,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false},"APP":{"userAgent":"Mozilla/5.0 AppleWebKit/537.36 (KHTML, like Gecko; compatible; ClaudeBot/1.0; +claudebot@anthropic.com)","isDev":false,"isTTM":true,"deviceId":"web-server-community-laohu8-v3","version":"4.22.4","shortVersion":"4.22.4","platform":"web","vendor":"web","appName":"ttm","isIOS":false,"isAndroid":false,"isTiger":false,"isTHS":false,"isWeiXin":false,"isWeiXinMini":false,"isWeiBo":false,"isQQ":false,"isBaiduSwan":false,"isBaiduBox":false,"isDingTalk":false,"isToutiao":false,"isOnePlus":false,"isHuaWei":false,"isXiaomi":false,"isXiaomiWebView":false,"isOppo":false,"isVivo":false,"isSamsung":false,"isMobile":false},"href":"/m/news/2422059547"}