National Retail PropertiesNYSE: NNN

If you are looking for reliable income, these net lease REITs are each designed to let you sleep well at night.

NNN REIT has achieved a rare milestone.

ORLANDO, Fla. , Oct. 15, 2024 /PRNewswire/ -- The Board of Directors of NNN REIT, Inc. (NYSE: NNN), a real estate investment trust, today announced a quarterly dividend of 58 cents per share payable November 15, 2024 to shareholders of record as of October 31, 2024.

NNN REIT has a strong dividend track record with 35 consecutive years of increases and a stable yield over 4.6%, but limited growth prospects. Despite excellent fundamentals, including 99%+ occupancy and low volatility, NNN REIT's current valuation at $47/share is not attractive for new investments. The company's conservative strategy and diversified portfolio offer stability, but the potential for significant outperformance is limited, justifying a "Hold" rating.

We are changing our recommendation for NNN from a buy to a hold due to expected mean reversion in investment spreads. The current 117-basis points of investment spread will probably narrow as the sector adjusts to a new interest rate regime. The forward AFFO yield of 7.02% is below our hurdle rate of 7.54% for the sector.

NNN REIT offers a solid 4.8% dividend yield with a conservative 67% AFFO payout ratio and 35 years of consecutive dividend growth. NNN's strong balance sheet, diversified portfolio, and accretive acquisitions position it well to handle economic and interest rate uncertainties. Despite modest near-term FFO growth, potential rate cuts and steady rent escalations combined with acquisitions provide long-term growth prospects.

I have been bullish on NNN REIT since mid 2023, where since then it has produced ~ 20% in total returns. Now, looking at NNN we can see a compelling entry point in terms of the valuations relative to other closest peers such as O, ADC and EPRT. However, peeling back the onion a bit, we will also identify some reasons why the discount could be justified.

NNN REIT has increased its dividend for 35 straight years. It shares many similarities with Realty Income.

The Fed has signaled the start of a new easing cycle, and this bodes well for net lease REITs. Realty Income boasts a 5.05% dividend yield, solid debt metrics, and consistent AFFO growth, making it a reliable investment. NNN REIT offers a 4.83% dividend yield, a conservative business model, and a 35-year streak of dividend increases, ensuring steady returns.