Dividend stocks come in all different forms. Some companies offer higher dividend yields along with higher risk profiles, while others have lower yields but deliver more growth. Others offer a combination of both, with more durable income streams that rise at a more measured pace.
Agree Realty (NYSE: ADC), Sun Communities (NYSE: SUI), and Stag Industrial (NYSE: STAG) are in that latter group. The real estate investment trusts (REITs) offer above-average dividends backed by lower-risk profiles, making them ideal for those seeking durable passive income streams. Here's why income-focused investors should consider buying them for 2025 and beyond.
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Designed for durability
Agree Realty is a retail-focused REIT. It owns freestanding properties net leased or ground leased to financially strong tenants (67.5% of its rental income comes from investment-grade tenants). Those lease structures require that tenants cover all operating expenses, including routine maintenance, real estate taxes, and property insurance. This durable real estate portfolio provides the REIT with very stable and low-risk cash flow.
The company pays out a conservative percentage of its steady income in dividends (its payout ratio is less than 75% of its funds from operations, or FFO). Agree Realty also has a strong investment-grade balance sheet backed by a low leverage ratio. These factors help put its 4%-yielding monthly dividend on a very sustainable foundation.
Agree Realty has grown its dividend at a 5.7% compound annual rate over the past decade, and it's in a strong position to continue growing in 2025 and beyond. The company currently has a record $2.3 billion of liquidity and no material debt maturities until 2028. That gives it tremendous financial flexibility to continue acquiring income-generating retail properties in the coming years.
As stable as it gets
Sun Communities is a residential REIT focused on niche property sectors. It owns a portfolio of manufactured housing communities, RV resorts, marinas, and U.K. holiday parks.
Manufactured home communities are some of the most durable rental properties. Relocating a manufactured home is challenging and expensive. Because of that, the REIT can continue raising rents even during a recession. Over the last 20 years, Sun Communities has recorded positive net operating income (NOI) growth every single year. Further, it has grown its NOI at a faster rate than other REITs (5.2% compound annual growth rate since 2000 compared to the 3.2% industry average).
Sun Communities is in an excellent position to continue growing in the coming years. It expects to raise rents at its manufactured home communities at rates tied to the market or inflation. It also has several recently developed or vacant sites across its portfolio that it can lease to boost its already strong occupancy rate.
Meanwhile, the company continues to transition RV sites from transient to annual leases, which produces higher, steadier income. In addition to its internal growth drivers, the REIT has a solid investment-grade balance sheet, giving it the financial flexibility to continue making acquisitions as opportunities arise. These factors should grow its FFO, which should allow the REIT to continue increasing its more than 3%-yielding dividend.
Highly sought-after properties
Stag Industrial focuses on industrial real estate, like warehouses and light manufacturing facilities. It signs long-term leases with credit-worthy tenants for these properties. Those leases escalate rents at a low-single-digit annual rate (2.8% for 2024).
The company's leases generate lots of stable cash flow. It pays out less than 70% via its monthly dividend (which yields over 4%), enabling it to generate over $100 million in excess free cash flow each year that it can use to fund new investments. The REIT also has a strong investment-grade balance sheet, giving it even more financial flexibility to make new investments.
Demand for industrial real estate is robust and growing. That's enabling Stag Industrial to secure much higher lease rates when legacy contracts expire (about 30% on average in 2024). Add that to the rent growth from legacy leases and the incremental income from new investments, and the REIT can continue growing its dividend, something it has done every year since it came public in 2011.
Highly durable dividend stocks
Agree Realty, Sun Communities, and Stag Industrial have very low-risk business models. The REITs own properties backed by long-term leases that supply them with steady income. They also have rock-solid financial profiles. Because of that, they should be able to maintain and grow their higher-yielding dividends in 2025 and beyond. That makes them ideal dividend stocks to buy for those seeking durable passive income.
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Matt DiLallo has positions in Stag Industrial and Sun Communities. The Motley Fool recommends Stag Industrial and Sun Communities. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
