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Stock Analysis of National Retail Properties

National Retail Properties, Inc. (NNN) is a publicly owned equity real estate investment trust. The firm acquires, owns, manages, and develops retail properties in the United States. National Retail Properties is structured as a REIT, which means that all profits, gains and losses, flow-through and are taxed at the individual investor’s level.

This dividend achiever has managed to boost dividends for 23 years in a row. Over the past decade, this REIT has managed to boost distributions by only 2.10%/year. Even the latest distribution hike in 2012 was for a meager 2.60%, to 39.50 cents/share. This is below the rate of inflation, and thus could expose investors eroding purchasing power of income over time. On the positive side however, National Retail Properties was one of the few REITs that did not cut distributions during the financial crisis of 2007 – 2009.

Investors can sign up for National Retail Properties’ DRIP plan, by investing as little as $100. The beauty of this plan is that dividends are reinvested at a 1% discount, which allows for a much faster compounding of distributions. DRIPs are more difficult to manage at an individual level, particularly investors own more than 20 -30 individual stocks, and could be a pain if good records are not kept. Check this listing of companies offering drip discounts.

The company focuses on single-tenant properties, under a triple-net lease. These properties are leased by large recognized retailers. Some of these retailers offer pretty good Mothers Day promotions to customers from time to time. Under a triple-net lease, the tenant is responsible for paying property taxes and ongoing operating expenses associated with the property. The lessor receives a base rent amount, with clauses for rent increases over the course of a contract based on inflation and store sales above certain thresholds. This provides for a very stable source of revenue. A few of the company’s competitors include Realty Income (O) and W.P. Carey (WPC).

At this point I view National Retail Properties as a hold that could be attractive on dips. The slow distribution growth is something that does not look very appealing at this point, particularly given the high payout ratio. The yield chasing crowd has taken the stock price to multi-year highs, and could probably go as high up as $39 - $40/share, for a yield of 4%. That being said, I might be interested in purchasing some shares of National Retail Properties on dips below $29 /share. I would be particularly interested in National Retail Properties on dips below $26/share.

Full Disclosure: Long O, NNN

Relevant Articles:

Using DRIPs for faster compounding of dividends
Four High Yield REITs for current income
Eight Income Stocks Boosting Investor Returns
Realty Income (O) Raises Dividends by a Record 19.20%

This article was written by Dividend Growth Investor. If you enjoyed this article, please subscribe to my feed [RSS], or have future articles emailed to you [Email] or follow me on Twitter [Twitter].