News

The surging market has left some strong companies behind, including in the realm of real estate dividend stocks. Now might be the time to consider adding a couple to the income-focused portion of a growth-and-income portfolio.

Ten years is a good window to keep in mind when looking at long-term buy-and-hold stocks, and there's no time like the present to look for bargains in a bull market just recently born.

Ten years is also a good measure to use as you look back on the past performance of your prospective purchases.

Two real estate investment trusts (REITs) that I've been adding to regularly are retail landlord Agree Realty (NYSE: ADC) and life sciences space specialist Alexandria Real Estate Equities (NYSE: ARE).

There are more than 200 publicly traded REITs on the U.S. exchanges and as a sector they've largely missed out on the rally sparked by slowing inflation and the prospect of interest rate cuts. REITs, because they typically must finance portfolio growth, are particularly sensitive to interest rates and delays in the expected cuts this year have helped hamper their share price performance.

However, as the chart above shows, Agree and Alexandria have easily outpaced the benchmark Vanguard Real Estate ETF in total return over the past decade.

And while they're both well behind the greater market now, there's ample reason for optimism about their recovery, based on their track record of success focusing on their core businesses.

Don't try this at home

Alexandria is in its 30th year of business as an owner, operator, and developer of collaborative life science, agtech, and advanced technology mega campuses in and around Boston, the San Francisco Bay Area, New York City, San Diego, Seattle, Maryland, and North Carolina's Research Triangle.

The portfolio has grown to about 73 million square feet of occupied space and space under development, including 1.2 million square feet delivered in the fourth quarter alone. Recent highlights include about 800,000 square feet leased in two Boston locations to Moderna and Eli Lilly, and a $300 million investment by AstraZeneca in a cell therapy manufacturing facility in Rockville, Maryland.

Providing specialized lab and support space helps inoculate San Diego-based Alexandria against the fears of permanent vacancies that now infect office REIT investing. The work of Alexandria's clients doesn't lend itself to spare bedrooms or dining room tables.

Recession-resistant retail space

Meanwhile, Agree Realty is a highly regarded retail REIT whose own tenant list largely comprises investment grade, e-commerce resistant, brand-name retailers such as Walmart, Home Depot, Tractor Supply Co., and Kroger.

The suburban Detroit company now has a portfolio of 2,135 properties and 44.2 million square feet in 49 states. Like Alexandria, it is on the grow, leveraging its rock-solid balance sheet for $1.3 billion in 2023 acquisitions and with more than $1 billion in liquidity in place for this year.

Growing dividends, FFO, and optimism

REITs are required by tax law to pay out at least 90% of their taxable income as dividends, and Agree and Alexandria have both steadily raised their payouts over the past 10 years, as the chart above shows. They also continue to produce growing funds from operations (FFO) to comfortably sustain those dividends.

They're both well off their high-water marks in share price. Agree shares are trading at about $57, down from a 52-week high of $75 and yielding about 5.2%. Alexandria shares, meanwhile, are yielding about 4.3% and are trading at about $119 a share, sharply down from their 52-week high of $162.

Analysts who follow these stocks rate them both as buys. We'll know more when the Fed begins delivering on interest rate reductions, which should give REITs, especially particularly solid ones like these, a boost. Meanwhile, they continue as solid dividend stocks. I'm still confident in them, too, as good buys for a decade or longer.

Should you invest $1,000 in Alexandria Real Estate Equities right now?

Before you buy stock in Alexandria Real Estate Equities, consider this:

The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Alexandria Real Estate Equities wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.

Stock Advisor provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month. The Stock Advisor service has more than tripled the return of S&P 500 since 2002*.

*Stock Advisor returns as of February 12, 2024

Marc Rapport has positions in Agree Realty, Alexandria Real Estate Equities, and Vanguard Specialized Funds-Vanguard Real Estate ETF. The Motley Fool has positions in and recommends Alexandria Real Estate Equities, Home Depot, Vanguard Specialized Funds-Vanguard Real Estate ETF, and Walmart. The Motley Fool recommends AstraZeneca Plc, Kroger, and Moderna. 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.