Wednesday, 20 December 2023
by Rose White
Stocks in companies that are part and parcel of the artificial intelligence (AI) revolution attract intense investor attention, as they should.
They include both the generationally successful blue chip technology companies like Alphabet and upstarts like C3.ai that may or may not prove to be on the same long-term trajectory.
Certainly, do not ignore the investment treasure that potentially lies among the growing pantheon of AI players. These are companies at the forefront of innovations that can profitably disrupt existing industries while creating new markets, and that could well be the case for years to come.
In the meantime, don’t get so caught up as to neglect the enduring value of diversification as an insurance policy against the vagaries of a high-flying market sector. (Remember the dot-com implosion a mere 20 years ago?)
Keeping some cash in proven dividend stocks is a great way to diversify and buttress your portfolio. These companies tend to be in mature industries with established business models, and predictable cash flows both to their own coffers and to yours.
The effect is cumulative and enduring. According to a new study by Hartford Funds, reinvested dividends — through the magic of compounding — have accounted for 69% of the total return of the S&P 500 index since 1960.
While it hasn’t been around that long, a good stock to consider for this part of your investing strategy is Agree Realty (NYSE: ADC), a real estate investment trust (REIT) that, since going public in 1994, has produced an average annual total return of 11.3%. In the past 10 years, Agree has posted an annualized dividend growth of 5.9%, powering its total return past that of the big index over that time, as the chart below shows.
As a REIT, Agree Realty is obligated by tax law to return at least 90% of its taxable income each year to shareholders in the form of dividends. This suburban Detroit firm does so comfortably with a growing portfolio that currently comprises about 2,100 properties in 49 states.
One of the industry’s leading retail REITs, Agree has diversity within its own holdings, with nearly 70% of its rent coming from investment-grade tenants led by Walmart at 6.2% of the rent roll but no other retailer accounting for more than 5%. By industry, grocery and home improvement stores account for 9.7% and 8.6% of the rent roll, respectively, Agree said in its third-quarter earnings report.
Agree pays out monthly, making it perhaps a bit more agreeable to passive-income investors, and it currently is yielding about 4.9% at a share price of about $61. Analysts give it a consensus target price of $67.69, an upside of about 10% that adds to its attractiveness and stability.
Dividend stocks like Agree Realty and more volatile issues from AI start-ups both have their place in a balanced portfolio. That mix is highly individual, depending on such factors as your desire for investment income, timeline to retirement, and tolerance risk.
While it’s probably more assurance than insurance, investing in a proven performer like Agree Realty can help provide some confidence around your portfolio’s overall performance while you probe the market for big scores in the explosive, emerging sector of AI investing.
Should you invest $1,000 in Agree Realty right now?
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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Marc Rapport has positions in Agree Realty and Alphabet. The Motley Fool has positions in and recommends Alphabet and Walmart. The Motley Fool recommends C3.ai. The Motley Fool has a disclosure policy.