National Retail Properties (NNN) is a diversified real estate investment trust (REIT) focusing on single-tenant retail properties.
National Retail Properties stock has lost about 10% of its value so far in 2022. Because of this, the dividend yield has risen, and the stock is again attractive for income investors. The company also released better-than-expected earnings for Q4 2021.
The author is bullish on National Retail Properties stock.
What Is a REIT?
Simply put, a REIT is an entity that owns real estate investments to produce income. REITs are afforded certain tax advantages that other corporations are not. REITs are pass-through entities. Therefore, they are not subject to corporate income taxes. While the trust itself does not pay corporate income tax, the investor is on the hook to pay taxes on the dividends they receive.
The trust must return 90% of its taxable income to shareholders through dividends to receive this tax advantage. As an investment, REITs generally offer shareholders higher yields than many corporations and are reliable sources of income.
The dividend is the main reason that investors turn to REITs. In the case of National Retail Properties, the dividend has risen annually for the 32 consecutive years, indicating that it is incredibly sage. The company is currently paying $0.53 per share quarterly. This provides investors with an annual yield right around 4.9%.
Why National Retail Properties?
National Retail Properties is a solid pick for several reasons. First, the company’s focus on single-tenant retail insulates the investments from the rise in e-commerce.
The single-tenant properties are utilized for fast-food, stand-alone chain restaurants, convenience stores, gas stations, auto parts, and others that are not generally under threat from e-commerce.
The trust does hold some properties that could be susceptible to risk from COVID-19 restrictions, such as theaters and health and fitness centers, although it does appear this risk is waning.
Another advantage is that the majority of leases are triple-net leases. This means that the tenant is responsible for the property’s maintenance, taxes, and insurance. Because of this, the landlord has less volatility as unscheduled maintenance and rises in taxes and insurance will predominantly impact the tenant.
National Retail Properties also controls volatility and reduces vacancies by signing tenants to initial lease terms 15-20 years long. The weighted-average remaining lease term for all properties stood at over 10 years as of the end of 2021. National Retail Properties reported an impressive occupancy rate of 99% for its 3,223 properties as of the end of 2021. This occupancy rate shows the high demand that exists for these spaces.
In Q4 2021, adjusted funds from operations (AFFO) increased to $135 million from ~$120 million in the same quarter of 2020. AFFO per share also increased for this period from $0.69 to $0.77. For the full year 2021, AFFO per share came in at $3.06, a healthy 22% increase over 2020. Given these results, the company is on track to continue its stellar record of dividend payments and annual increases.
Wall Street’s Take
Turning to Wall Street, analysts are somewhat neutral on National Retail Properties stock. Analysts have a Hold consensus rating based on three Buys, four Holds, and one Sell rating.
The average National Retail Properties price target of $48.67 implies 12.5% upside potential.
The Bottom Line on National Retail Properties
National Retail Properties can be a terrific source of consistent income. The dividend is rock solid and has an exemplary record of payments and increases. Add the impressive occupancy rate and increased guidance, and shareholders can rest easy.
The core properties are resistant to the e-commerce boom, and the trust is highly diversified. Due to the recent share price decline, the stock yields nearly 5%, an attractive return for income-driven investors.
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