If there’s one thing for certain about the stock market, it’s that nobody has a crystal ball to predict the future.
But there are some tenets of investing that seem to maintain validity over time. One constant is that the ability of a company to grow its dividend over time is correlated with its track record for increasing revenue and earnings per share (EPS). This is especially true for real estate investment trusts (REITs).
When investors look for high-quality REITs to purchase, one of the best measures of future performance they consider is dividends paid over time. Are they flat or growing? Were dividends cut during the pandemic, and if so, are they now returning to prepandemic levels? Do the increases match the revenue and EPS growth, or has the payout ratio been stretched too far? Remember, as dividends grow, so does the yield on your original purchase price, so dividend growth is extremely important.
Take a look at one REIT that has been growing its dividend nicely over the past five years and how much an investment in 2017 would be producing in dividends today.
National Retail Properties Inc. NNN is a net-lease REIT that owns a diversified group of stand-alone retail outlets across the U.S. National Retail Properties has a stable tenant base with names like 7-Eleven, Sunoco LP, Best Buy, Camping World, BJ's Wholesale Club and Chuck E. Cheese.
National Retail Properties’ portfolio consists of 3,349 properties in 48 states. In its third-quarter operating results, National Retail Properties stated that its properties are 99.4% occupied with a weighted average remaining lease term of 10.4 years. These are excellent numbers and should bode well for investors even if 2023 brings about a hard recession.
Five years ago, the share price of National Retail Properties was $42.34. Its quarterly paid dividend was $0.475, or $1.90 annually, for a yield of 4.4%. If you had invested $10,000 in National Retail Properties, you would have received 236.18 shares.
Over those five years, National Retail Properties has raised its dividend five times and the dividend stands today at $0.55, or $2.20 annually. This is an increase of 15.7%. There were no cuts made to the dividend, even during the worst of the pandemic when retail outlets were suffering.
The dividends collected during that time would have been $10.31, and with the most recent closing price of $45.82, your total return over five years would be 32.57%. Your original $10,000 investment would now be worth $13,256.48, and the yield on your original purchase price would have increased from 4.4% to 5.1%.
Some investors prefer to reinvest dividends to acquire more shares, rather than collect the income. If you had chosen to reinvest the dividends from National Retail Properties, the original 236.18 shares would have grown to 298.32 shares and your total return over five years would be 36.69%.
During those five years, National Retail Properties has justified its dividend increases by expanding its quarterly revenue from $150.25 million to $190.78 and growing its quarterly funds from operations (FFO) from $0.63 to $0.79. The present forward dividend to FFO payout ratio is a reasonable 70%.
On its company website, National Retail Properties points out that it has produced 33 consecutive annual increases. Its company motto reads, “The power of consistency is profound.” And over the past five years, National Retail Properties has certainly proven that to be true.
Weekly REIT Report: REITs are one of the most misunderstood investment options, making it difficult for investors to spot incredible opportunities until it’s too late. Benzinga’s in-house real estate research team has been working hard to identify the greatest opportunities in today’s market, which you can gain access to for free by signing up for Benzinga’s Weekly REIT Report.
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