National Retail Properties: Pack this 5% yield for turbulent times (NYSE:NNN)

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bycorex

Secure high performance may seem like an oxymoron, but it doesn’t always have to be. This is especially true among REITs, which are designed for high returns. That’s because they don’t have to pay corporate taxes while distribute at least 90% of your taxable income.

Furthermore, many REITs have investment-grade credit ratings, which is important for both bond and stock investors to assess the overall quality of a company. This brings me to National Retail Properties (New York Stock Exchange: NNN), which yields a performance well above that of the S&P 500 (SPY). This article highlights why NNN remains a good buy after its recent quarterly results.

Why NN?

National Retail Properties is a truly national triple net lease REIT with a high-quality, diverse portfolio of 3,349 properties spread across 48 states in the US. % of NNN annual income.

NNN is led by an experienced management team, with an average tenure of 21 years in the senior leadership team. In addition, 61% of NNN employees have been with the company for more than 5 years. Like its peer, Realty Income (O), NNN is also a dividend aristocrat, with 33 consecutive years of increases under its belt, including the latest increase of 3.8% to $0.55 per share per quarter.

NNN maintains strong operating fundamentals, with a high occupancy rate of 99.4% at the end of the third quarter, and has a long weighted average lease term of 10.4 years, putting it on par with its peers. net lease. Notably, NNN also has a strong balance sheet, with a long weighted average debt maturity of 14 years for fixed-rate debt.

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Furthermore, it appears that management has found no shortage of investment opportunities, having invested $223 million during the third quarter, comprising 52 properties with a total of 613,000 square feet of gross leasable area, at a relatively high asking price (in comparison with previous years). 6.3% cash yield. Management has also proven to be an active manager of its portfolio to maximize opportunities, selling 8 properties that produced $5.9 million in profit on sales.

Encouragingly, management raised basic FFO per share guidance from $3.10 at the midpoint to $3.13. NNN also appears to be well positioned from a balance sheet standpoint with no major debt maturing until the end of next year. It also has a BBB+ rated balance sheet, a low debt to EBITDA ratio of 5.3x, a strong fixed charge coverage ratio of 4.7x and has over $1 billion of available liquidity in its bank credit facility.

Risks to NNN include the current high rate of inflation, which is outpacing NNN’s ability to raise rents, as well as its rate of dividend growth. However, this is not limited to just NNNs or even REITs in general, as many C-Corp companies are also experiencing issues with supply disruptions and commodity price inflation, unable to fully translate the highest costs to its consumers. Also, while NNN’s annual lease scales may be below the current rate of inflation, it should be able to adjust expiring leases to a higher rate, but this of course takes time.

However, I see value in NNN as it currently produces an attractive 5%. In addition, the dividend is very well covered with an AFFO payout rate of just 67%, giving management plenty of room to increase the dividend while maintaining its 33-year track record of annual increases.

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Lastly, at the current price of $43.89, NNN has a combined P/FFO of 14.2, well below its normal P/FFO of 17.8 over the past decade. Analysts have a consensus buy rating on the stock with an average price target of $47.30, which translates to a potential total return of 13%, including dividends.

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NNN Assessment (FAST graphics)

Investor Takeaway

National Retail Properties reported strong results in its third quarter and appears to be well positioned for the future. The company’s dividend is very well covered and offers an attractive 5% return, all while maintaining a very solid balance sheet. Investors looking for quality high yield could do much worse than investing in NNN. As such, I see NNN as a solid buy and a port in the storm in the midst of a choppy market.

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