This 5% yielding real estate stock has increased its dividend in each of the last 4 recessions

NNN REIT (NNN -0.49%) has quietly amassed a great dividend-paying record. The retail-focused real estate investment trust (REIT) offered its first dividend increase to shareholders in 1990. Since then, it hasn’t stopped raising its payout and recently posted its 35th consecutive year of dividend growth.

That’s an impressive record considering we’ve had four recessions during this time. Economic downturns tend to be times when companies become more conservative by either cutting back on dividend growth or cutting payouts to conserve cash. This is why only two other REITs and less than 80 publicly traded companies have reached this milestone. Here’s a look at what it enabled Retail REIT to keep pushing his pay — currently 5% — higher, and why this steady upward trend looks set to continue.

Built for stability

NNN The REIT has a very simple one strategy. The REIT invests in a single tenant net rent commercial properties across the country. The company signs long-term, triple-net leasing contracts (NNN) with high quality retailers. That rental structure produces very steady rental income because it requires the tenant to cover building insurance, maintenance and property taxes. These leases usually include annual rental rate escalation clauses that lead to constant rent increases.

The REIT has a diversified portfolio of commercial properties. It owns nearly 3,550 properties in 49 states. They rent them to 375 national and regional tenants from over 35 trade lines. For example, the top five tenant industries are automotive services (16.7% of annual base rent), convenience stores (16.2%), limited service restaurants (8.5%), full service restaurants (8 .4%) and family entertainment centers. (6.6%).

Meanwhile, NNN The REIT pays a conservative percentage of stable income in dividends. Its dividend payout ratio was less than 70% of adjusted funds from operations (FFO) in the first half of 2024. This is a very conservative level for a REIT. It gives him a nice cushion while allowing him to retain a decent amount of cash to acquire additional income-producing retail properties.

The REIT also has a conservative balance sheet with a good investment credit rating. It has a low level leverage ratio and uses primarily long-term, fixed-rate debt. It also has well-scaled debt maturities. These features give it a lot of flexibility for financing new purchases.

Built to weather recessions

Despite the impact that recessions can have on the retail sector, NNN The REIT portfolio has weathered the most recent economic storms with ease. His occupation has never fallen below 96.4% over the past 20 years (which includes two severe recessions). In comparison, occupancy in the REIT sector fell to around 90% during the financial crisis (2009-2010) and to around 87% during the 2020 pandemic.

In other words, its tenants stayed in business and continued to pay rent at a higher rate than most other REITs experienced during a recession. That’s because many of its renters see steady or even improved demand during a recession, as consumers, for example, keep their cars longer (which get auto service) and trade up to lower-priced options ( convenience stores and limited service restaurants).

REITs financially strong The profile also allows him to continue growing his portfolio during a downturn. It can use its retained cash and balance sheet flexibility to continue investing when it is more difficult to access external capital. For example, her he was still able makes acquisitions during the Great Recession and pandemic recession, times when other REITs have struggled to raise capital to finance deals.

NNN The REIT has put itself in an excellent position to weather the next economic storm. Due to the long-term nature of the leases, it has minimal future expirations (only 4.5% until 2025). Because of that and the overall durability of its portfolio, it should continue to produce steady cash flow.

Meanwhile, it has raised a lot of liquidity this year to increase its financial flexibility. For example, it extended its credit facility from $1.1 billion to $1.2 billion while extending the maturity to 2028, sold 20 properties for $85.8 million, raised $34.8 million through the sale of stock and issued $500 million in 10-year debt. These moves allowed it to finance $235 million in new real estate investments and buy back $350 million in maturing debt, while maintaining one of the most conservative balance sheets in the industry.

Ready to face the next recession

NNN REIT has built its business to deliver consistent results. This has allowed the REIT to increase its dividend for 35 consecutive years, which includes four recessions. Given its sustainable portfolio and conservative financial profile, it is in an excellent position to weather the next economic storm. Because of that, it is a great one stocks to buy for those looking for an attractive and steadily growing income stream that should have no problem surviving future downturns.