Realty Income is a much larger REIT, with roughly six times as many properties. Further, it has more diversification, as retail supplies 85% of its rent, and it owns properties in the U.S. and Europe. However, it has a similar concentration at the top -- its three largest tenants, Walgreens (NYSE: WBA), 7-Eleven, and Dollar General (NYSE: DG), supply more than 15% of its rent.
Further, while it also primarily focuses on investment-grade essential retailers like convenience stores (12% of rent), grocery stores (8.4%), drugstores (8.4%), and dollar stores (7.8%), it does have some exposure to economically sensitive properties like health and fitness (7.1%) and theaters (5.7%). This means its rental collection rate -- while above the retail REIT sector average -- was a bit below Agree's, at 93.6% in December and 93.7% in November.
Realty Income compliments its relatively stable rental collection rate with a reasonable dividend payout ratio and top-tier balance sheet. Those factors gave it the flexibility to continue increasing its 4.6%-yielding dividend last year -- extending its growth streak to 93 straight quarters -- and buy additional properties, with it expecting to purchase $2 billion of retail locations in 2020. Given its strong financial profile, the REIT should be able to continue buying properties in 2021, which would allow it to keep its dividend growth streak intact.
Two of the best in retail
Agree Realty and Realty Income have excellent track records of creating shareholder value. Agree and Realty Income have produced compound average annual total returns of 13.3% and 15.3%, respectively, since their public listings in 1994. Both appear poised to continue generating strong total returns in the future, thanks to their top-notch portfolios and balance sheets.
However, Realty Income seems to have slightly more upside potential due to its relative underperformance last year, which gives it a somewhat lower valuation and higher dividend yield. Because of that, it stands out as the better buy between the two in a tight race.