Monday, August 11, 2008

National Retail Properties (NNN) Dividend Stock Analysis

National Retail Properties, Inc. is a publicly owned equity real estate investment trust. The firm acquires, owns, manages, and develops retail properties in the United States. It provides complete turn-key and built-to-suit development services including market analysis, site selection and acquisition, entitlements, permitting, and construction management. The firm also focuses on purchasing and financing net-leased retail properties.

The company is a dividend achiever as well as a component of the S&P 1500 index. It has been increasing its dividends for the past 18 consecutive years. From 1998 up until June 30 2008 this dividend growth stock has delivered an annual average total return of 9.60 % to its shareholders.

At the same time company has managed to deliver a 2.90% average annual increase in its FFO since 1998. FFO is a common measurement for a REIT. It is an alternative non-GAAP measure that is considered to be a good indicator of a company’s ability to pay dividends.

The ROE has been increasing from its 1998-2004 range of 7% -10% rising to almost 15% in 2007.

Annual dividend payments have increased over the past 10 years by an average of 1.6% annually, which is lower than the growth in FFO. At 1.6% growth in dividends it would take you decades to double your dividend income.

If we invested $100,000 in NNN on
December 31, 1997 we would have bought 5596 shares. In January 1998 your monthly dividend check would have been for $1679. If you kept reinvesting the dividends though instead of spending them, your monthly dividend income would have risen to $4873 by August 2008. For a period of 10 years, your monthly dividend payment would have increased by 25 %. If you reinvested it though and took advantage of the monthly compounding effect, your quarterly dividend income would have increased by 190%.

The payout from funds from operations has remained at the 75% - 92% range for the majority of our study period. One of the reasons why I wasn’t enthusiastic about the stock was because of this high payout. Do not repeat the same mistake as me however – In order to maintain their tax status as a REIT for federal income tax purposes, they generally are required to distribute dividends to our stockholders aggregating annually at least 90% of our REIT taxable income (determined without regard to the dividends paid deduction and by excluding net capital gains), and are subject to income tax to the extent we distribute less than 100% of the REIT taxable income (including net capital gains). In addition to that, the fact that the company has managed to keep increasing its profits and dividends while keeping the payout form operations stable is a positive sign.

Overall I think NNN is attractively valued at current prices. It is nice to have another asset class in your portfolio in order to achieve diversification.

Disclosure: I do not own shares of NNN
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