From a dividend-generation perspective, our Q3 ranking indicates that National Retail Properties (NYSE:NNN) still posts stronger results than Realty Income (NYSE:O). The companies have much in common — both invest in properties subject to long-term net leases. Their dividend track record is also great, having made increased distributions for 26 and 21 years respectively, and the results for both have been better in Q3 than in Q2.
Dividend payout ratios decreased as AFFO-per-share growth increased. Occupancy was slightly better, and the levels of total debt to capitalization have been kept conservative. However, as the table indicates, NNN continues to outperform Realty Income metric by metric.
During the Q3 conference, National Retail’s management clarified that they continue to see strong job creation in Texas, despite lower oil prices. The company has a large footprint in Texas, where a significant portion of Realty Income’s portfolio — though less than National Retail’s — is also located. Tenant wise, National Retail’s portfolio is skewed to convenience stores and restaurants.
In valuation terms, NNN’s entry point is slightly better than O’s. Its price-to-FFO is at 17×, compared with Realty’s 18×. NNN’s and Realty’s dividend yields are 4.5 and 4.6 percent respectively.
Just to clarify: There is no ocean difference in the performance of the two companies, which both have overall performance as well as freestanding retail, the sector to which they belong. In fact, freestanding has performed in line with REIT stocks generally. However, we see that National Retail has an edge.
Disclaimer: This newsletter is not engaged in rendering tax, accounting, or other professional advice through this publication. No statement in this issue is to be construed as a recommendation to buy or sell any security or other investment. Please do your own due diligence before making any investment decision. Some information presented in this publication has been obtained from third-party sources considered to be reliable. Sources are not required to make representations as to the accuracy of the information, however, and consequently the publisher cannot guarantee accuracy.
Disclosure: The author has no positions in any shares mentioned, and no plans to initiate any positions within the next 72 hours.