Is Now A Good Time To Buy NNN REIT?

When investors consider the acquisition of a stock, they sort through numerous variables to make an informed decision. They should assess the fundamentals of a stock as well as its historical performance, dividend growth and recent events.

Investors must also ask whether the time is right to acquire the stock and determine whether it's currently overbought or oversold. Do the moving averages and other technical indicators support a purchase? How do analysts perceive the company's prospects?

These questions support the idea that the timing of your stock purchase is just as crucial as the selection itself. Making a purchase at the wrong time, such as when the stock is extremely overbought or right before an earnings report, could result in a swift 10% or 15% loss in a matter of weeks. Conversely, buying the stock at the right time — when it is oversold but improving — could potentially yield substantial gains.

Take a look at one historically successful real estate investment trust (REIT) that has been underperforming recently, but is now trading at a level where it could become an excellent long-term buy.

NNN REIT Inc. NNN, formerly known as National Retail Properties, is an Orlando, Florida-based triple net-lease REIT that owns a diversified group of stand-alone retail outlets across the U.S. It presently has 3,479 properties of approximately 35.5 million square feet in 49 states. NNN REIT has a stable base of more than 350 tenants, including 7-Eleven, Sunoco, Best Buy, LA Fitness, Camping World, BJ's Wholesale Club and Chuck E. Cheese.

NNN is an income REIT stalwart that has increased its annual dividend for 34 consecutive years, making it a Dividend Aristocrat, and has never cut nor suspended its dividend. Its total return since August 2000 is 619.34%, or an average annual total return of 8.94%.

NNN REIT has no debts maturing until 2024 and a strong balance sheet.

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On Aug. 2, NNN REIT reported its second-quarter operating results. Funds from operations (FFO) of $0.80 matched analysts' estimates and were a 1.27% increase over FFO of $0.79 in the second quarter of 2022. Revenue of $202.43 million was slightly below the analyst consensus estimate of $203.4 million but produced a 6.1% increase over revenue of $190.78 million in the second quarter of 2022.

Additionally, NNN REIT raised its Core FFO guidance for 2023 from $3.14-$3.20 per share to $3.17-$3.22 per share. The consensus estimate was for $3.22.

NNN REIT also announced that it maintained its 99.4% occupancy level from the previous two quarters, and it presently has a weighted average remaining lease term of 10.2 years.

Despite the year-over-year improvements and FFO guidance increase, Wall Street was not happy that NNN REIT missed its revenue number and that the company's guidance range matched the estimate at the top instead of closer to the middle or low ends. In a classic Wall Street overreaction, the stock sold off and has now dropped over 8% since the report was released.

Stock Technicals

The chart below shows the recent price action for NNN REIT. At first glance it does not look good, but the chart indicates both positives and negatives.

On the negative side, the stock has been falling for some time, and the 50-day moving average (MA) has fallen below the 200-day MA. The 50-day recently came close to crossing back above the 200-day but failed to do so. The stock also fell through recent support at $39.75, and the next support level is near $36 per share.

On the positive side, the 200-day MA continues to have a slight upward trend, and both the 14-period relative strength index (RSI) at 25.84 and full stochastic at 3.33 are deeply oversold. That could indicate that the selling pressure will soon subside.

Recent News

NNN REIT has been busy with acquisitions and sales over the last few months. In the second quarter, it bought $181 million in new properties and sold seven others to earn a profit of approximately $13.9 million. Thirty-six new properties were bought with an initial cap rate of over 7%.

On July 14, NNN REIT increased its quarterly dividend 2.7% from $0.55 to $0.565 per share. The present yield on its $2.26 forward annual dividend is 5.82%. Assuming the dividend remains the same this year, the payout ratio will be 70% — comfortable coverage with little risk of a cut.

This is the fifth time that NNN REIT has increased its dividend since July 2020. When a company continually raises its dividend, it's usually a strong sign of improving earnings and revenue, along with continued faith in its future.

On Aug. 3, a day after the earnings report, RBC Capital Markets analyst Brad Heffern maintained a Sector Perform rating on NNN REIT but lowered the price target from $46 to $45.

On Aug. 9, NNN REIT announced a public offering of $500 million in senior unsecured notes due in 2033 with a rate of 5.6%. The notes were offered at 97.676% of the principal amount, payable on April 15 and Oct. 15 each year starting April 15, 2024. The underwriters included Bank of America Securities, Wells Fargo Securities, Citigroup Global Markets Inc. and others.

Wall Street seems to be concerned about the triple-net lease REITs having reached their peak in rents. But the triple-net lease REITs are among the most reliable and stable dividend-paying stocks and have less risk than REITs that are not triple net-lease programs. The quality of NNN REIT's tenants and its long history of dividend growth speak well for its ability to handle any economic environment. The REIT did not cut or suspend dividends during the pandemic in 2020, and that speaks volumes to its strength.

In short, the recent pullback on NNN REIT could provide investors with an excellent opportunity to acquire a stalwart REIT with a dividend yield that is over 1% above its five-year average.

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 the Weekly REIT Report.