Best Stock to Buy Right Now: Realty Income vs. Agree Realty

Agree Realty (ADC) and Realty Income (O) offer different risk/reward profiles for REIT investors; Agree Realty offers a lower 4.1% yield but projects higher adjusted FFO growth of 3.6%, while Realty Income yields 5.8% but anticipates slower adjusted FFO growth around 2.1%. Realty Income, the larger and more diversified of the two, may appeal to investors seeking higher current income and diversification, while Agree Realty may be more attractive to those prioritizing faster dividend growth.

Analysis

The net lease REIT sector presents distinct investment opportunities, exemplified by Agree Realty (ADC) and Realty Income (O). While the S&P 500 offers a modest 1.3% yield, the average REIT yields approximately 4.1%, a benchmark Agree Realty matches with its 4.1% dividend yield. In contrast, Realty Income, a bellwether in the net lease space, offers a higher 5.8% yield. This yield differential reflects varying growth prospects and portfolio characteristics. Agree Realty, with a portfolio of roughly 2,400 properties primarily focused on retail assets in the United States, is positioned for faster growth, projecting adjusted funds from operations (FFO) growth of 3.6% at the midpoint of its 2025 guidance. This supports its historical average dividend increase of around 5.5% per year over the past decade. Conversely, Realty Income, the largest net lease REIT with over 15,600 properties, boasts a more diversified portfolio spanning retail (75%), industrial, and other assets, including international investments. However, its larger scale contributes to a slower projected adjusted FFO growth of approximately 2.1% at the high end of its guidance, which may temper near-term dividend increases compared to its 30-year average of 4.3% annual growth. The market appears to afford Agree Realty a premium valuation, as indicated by its lower yield, likely due to its stronger growth profile. Both companies operate under the net lease model, where tenants bear most property-level operating costs, reducing landlord risk, particularly across a diversified portfolio.

Key Decisions for Investors

• Investors prioritizing higher current income and portfolio diversification may find Realty Income (O) more suitable, given its 5.8% yield and extensive, varied asset base, despite its slower growth outlook.
• Those seeking stronger growth in both FFO and dividends should consider Agree Realty (ADC), which projects 3.6% FFO growth and has a track record of 5.5% average annual dividend increases over the past decade, justifying its premium valuation.
• Evaluate the trade-off between Realty Income's established scale and higher current yield versus Agree Realty's more rapid expansion and dividend growth potential.
• Monitor Realty Income's future dividend growth in light of its projected 2.1% FFO growth, as sustained increases significantly above this level may be challenging without an acceleration in FFO.