We recently published a list of Dividend Champions List: Top 15. In this article, we are going to take a look at where NNN REIT, Inc. (NYSE:NNN stands in the dividend champions list.
In this dividend champions list, we will take a look at some of the best dividend stocks with at least 25 consecutive years of dividend growth and yields above 4%.
Dividend champions are companies that have raised their dividends for at least 25 years. While they share this trait with dividend aristocrats, the key difference is that dividend champions don’t need to be part of the S&P Index, whereas aristocrats do. Despite this distinction, what truly sets these stocks apart is their long-standing history of consistently increasing dividend payments to shareholders over time.
Dividend growth is one of the most appealing qualities a company can have in today’s market. Achieving 25 consecutive years of dividend increases is especially impressive, as these companies were able to boost their payouts even through challenging periods like the recent pandemic.
Although dividend stocks have lagged behind the market due to the growing prominence of tech stocks, the value of steady income remains irreplaceable. Dividend stocks are unlikely to fall out of favor. Analysts continue to express confidence in their potential. Earlier this year, BofA predicted that dividend stocks are set for growth, noting they should perform well even if consumer spending slows or a full recovery doesn’t materialize. Subramanian from BofA added that if the Federal Reserve cuts rates or halts hikes, companies can maintain their dividends by borrowing at lower interest rates. The analyst also highlighted that income investors have plenty of options for investing in dividend-paying stocks, such as broad mutual funds or exchange-traded funds (ETFs). This provides a variety of avenues to tap into dividend income.
US companies have focused on paying dividends to shareholders due to their growing cash reserves. At the end of the fourth quarter of 2023, businesses held $3.61 trillion in cash and equivalents on their balance sheets. This marked a 2% decline from the end of 2021 but an 11% increase compared to 2022, according to S&P Global Market Intelligence. The substantial cash reserves held by US companies had a significant impact on their dividend payments. A report by Janus Henderson highlighted that US businesses paid shareholders $161.5 billion in dividends during the second quarter of 2024, marking an 8.6% increase on an underlying basis. Companies paying dividends for the first time this year made the largest contribution to this growth, raising the US underlying total by 3.6 percentage points. While these companies’ dividends are relatively small compared to their profits, they still contributed a notable $3.8 billion. Excluding this effect, the remaining companies in the index saw a 5.0% growth, which aligns more closely with the nation’s long-term trend. This surge from new dividend payers is expected to continue throughout the year, keeping US payout growth ahead of the global average. The report further mentioned that 96% of the companies either maintained or increased their dividends during the quarter.
When investing in dividend stocks, many investors tend to prioritize dividend yields. However, experts recommend focusing more on stocks with consistent dividend growth rather than simply chasing high yields, which may not always be sustainable. That said, dividend yields aren’t necessarily a bad option. A balanced approach that combines healthy yields with steady dividend growth can provide strong investment opportunities for investors. In this dividend champions list, we will take a look at the highest-yielding stocks with at least 25 consecutive years of dividend growth.
Our Methodology:
For this list, we looked at a group of over 150 dividend champions, which are known for raising dividends for 25 years or more. From this list, we chose companies with the highest dividend yields as of September 24 and arranged them in order from lowest to highest yield.
We also measured hedge fund sentiment around each stock according to Insider Monkey’s database of 912 funds as of Q2 2024. Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points. (see more details here).
An exterior view of a modern retail property, embodying a landlord’s real estate investment.
NNN REIT, Inc. (NYSE:NNN)
Dividend Yield as of September 24: 4.83%
NNN REIT, Inc. (NYSE:NNN) is a Florida-based real estate investment trust company that mainly invests in high-quality properties. The company’s net leases provide steady income for the landlord, as the tenant is responsible for all operating expenses, such as maintenance, insurance, and property taxes. It secures long-term lease agreements, typically lasting 10 to 20 years, with reliable national and regional retailers. Its portfolio is also well-diversified across different tenants and sectors.
In the second quarter of 2024, NNN REIT, Inc. (NYSE:NNN) reported revenue of $217 million, which showed a 7% growth from the same period last year. The revenue also beat analysts’ estimates by $2.6 million. The company’s balance sheet was also strong as it ended the quarter with $2.1 million available in cash and cash equivalents, up from $1.2 million six months ago.
The company’s strong business momentum was also highlighted by Artisan Partners in its Q4 2023 investor letter. Here is what the firm has to say about NNN:
“In the first few days of October, we made our sole new purchase of the quarter: NNN REIT, Inc. (NYSE:NNN). NNN is a real estate investment trust (REIT) that executes triple net leases—a type of lease in which the tenant pays, in addition to rent and utilities, three other property expenses: insurance, maintenance and taxes. Typical advantages of triple net lease REITs versus other REITs involve lower leverage, lower capital intensity and a more stable rent roll that contribute to the ability to smartly fund growth. NNN focuses on free-standing single-tenant buildings whose tenants are in service retail industries (e.g., convenience stores, restaurants, gyms and car washes). Overall, NNN has been in the triple net business for 40+ years, has a seasoned and conservative management team and has operated successfully in and out of cycles. NNN’s approach is one of focus, discipline and creating economic value per share, which are traits often lacking in the real estate industry. As evidence, during a period of low cap rates and cheap leverage, NNN didn’t aggressively pursue acquisitions to improve short-term earnings but instead extended the duration of its borrowings to lock in low financing costs. NNN has an average duration on its debt of 12 years, which is more than double the peer average. Importantly, this provides NNN balance sheet protection in a rising rate environment, allowing the company to go on the offensive while other industry participants pull back due to soaring borrowing costs. At our time of purchase, the market’s desire to exit businesses with interest rate risk wasn’t differentiating between individual REITs and how they would perform in a higher for longer interest rate environment. In the case of NNN, our purchase was well timed as the stock rose 25% in Q4 as inflation data indicated we are probably past the peak of a rate tightening cycle.”
NNN REIT, Inc. (NYSE:NNN) also maintains a strong dividend history, which makes it one of the best stocks on our dividend champions list. In July, the company raised its common stock dividend by almost 3% to $0.58 per share, while maintaining a low dividend payout ratio. This marks the 35th consecutive year of annual dividend increases, a milestone achieved by only two other publicly traded REITs. The stock has a dividend yield of 4.83%, as of September 24.
At the end of June 2024, 16 hedge funds in Insider Monkey’s database owned stakes in NNN REIT, Inc. (NYSE:NNN), compared with 17 in the previous quarter. These stakes have a total value of $195 million.
Overall, NNN ranks 10th on our list of dividend champions. While we acknowledge the potential for NNN as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than NNN but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.