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3 Reasons To Own National Retail Properties
For the 22nd consecutive year, National Retail Properties Inc. (NYSE:NNN) has increased its annual dividend. It is one of only four publicly traded real estate investment trusts (REIT) to have achieved this accomplishment. Yielding about 6.1% at closing price on Oct. 13, 2011, its stock is a good alternative for income investors traditionally invested in bonds. (To know more about REIT, check out How To Analyze Real Estate Investment Trusts.)
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Yield on Cost
Dividends4Life.com is an interesting blog about dividends. Its author writes about their monthly progress towards achieving the goal of generating $110,000 in dividend income, annually, by the year 2027. One of the linchpins of this process is yield on cost (YOC); a financial metric that on its own is meaningless, but taken over time produces a great reading of whether an investor is growing their return on investment. Comparing the yield and YOC of Royal Bank of Canada (NYSE:RY) and The Coca-Cola Company (NYSE:KO), the author shows that over a 10-year period (1997-2006), Royal Bank's YOC grew 348% from 3.3% to 14.8% while Coca-Cola's grew 118% from 1.1% to 2.4%. On that basis, Royal Bank was a better buy. Now I'll figure out National Retail Properties' YOC over the past 10 years. Its stock closed at $13.34 (not split/dividend adjusted) on Oct. 12, 2001, for a yield on cost of 9.4%. Ten years later, that YOC is 11.7%. It might not seem like a whole lot but it's moving in the right direction and is consistently paid.
Stock Offering
The company sold 9.2 million of its shares on September 12 at an offering price of $26.07 a share. It will use the $229.4 million in net proceeds to repay borrowings and future acquisitions. The additional funds prompted it to raise its full-year funds from operations from a range of $1.50 to $1.53 to between $1.52 and $1.55. As of the beginning of September, it had made $290 million in investments, including 1.8 million square feet of gross leasable space acquisition. The share offering puts the acquisition volume for the year at least $400 million. While this is all good news, the most important part of this offering is it demonstrates investors believe its stock is worth at least $26 a share.
Net Lease Investments
National Retail Properties invests in single-tenant retail properties generally subject to long-term net leases. With 1,223 properties in 46 states, its top 20 tenants operate, on average, over 1,000 stores, each. The stability of its tenants provides a 97% occupancy rate, higher than many other types of REITs, ensuring consistent dividends. The net lease investment business is a $25 billion industry, and currently one of the most popular real estate investments anywhere. So popular, cap rates continue to drop as more investors try to get in on a good thing. For this reason, it's important for investors contemplating an investment in National Retail Properties, or competitors like Realty Income (NYSE:O) and Excel Trust (NYSE:EXL), to realize that in some years, all of the growth will come from dividends with no capital appreciation. Over the last 10 years, it's averaged about 50/50.
The Bottom Line
National Retail Properties is a perfect stock to implement dollar-cost averaging of a sort. Buy at $25 and then add to your position at the end of every December where its stock is down for the year. In 10 years, I'm confident you'll have done well.
Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!
Investopedia Markets: Explore the best one-stop source for financial news, quotes and insights.
Yield on Cost
Dividends4Life.com is an interesting blog about dividends. Its author writes about their monthly progress towards achieving the goal of generating $110,000 in dividend income, annually, by the year 2027. One of the linchpins of this process is yield on cost (YOC); a financial metric that on its own is meaningless, but taken over time produces a great reading of whether an investor is growing their return on investment. Comparing the yield and YOC of Royal Bank of Canada (NYSE:RY) and The Coca-Cola Company (NYSE:KO), the author shows that over a 10-year period (1997-2006), Royal Bank's YOC grew 348% from 3.3% to 14.8% while Coca-Cola's grew 118% from 1.1% to 2.4%. On that basis, Royal Bank was a better buy. Now I'll figure out National Retail Properties' YOC over the past 10 years. Its stock closed at $13.34 (not split/dividend adjusted) on Oct. 12, 2001, for a yield on cost of 9.4%. Ten years later, that YOC is 11.7%. It might not seem like a whole lot but it's moving in the right direction and is consistently paid.
The company sold 9.2 million of its shares on September 12 at an offering price of $26.07 a share. It will use the $229.4 million in net proceeds to repay borrowings and future acquisitions. The additional funds prompted it to raise its full-year funds from operations from a range of $1.50 to $1.53 to between $1.52 and $1.55. As of the beginning of September, it had made $290 million in investments, including 1.8 million square feet of gross leasable space acquisition. The share offering puts the acquisition volume for the year at least $400 million. While this is all good news, the most important part of this offering is it demonstrates investors believe its stock is worth at least $26 a share.
Net Lease Investments
National Retail Properties invests in single-tenant retail properties generally subject to long-term net leases. With 1,223 properties in 46 states, its top 20 tenants operate, on average, over 1,000 stores, each. The stability of its tenants provides a 97% occupancy rate, higher than many other types of REITs, ensuring consistent dividends. The net lease investment business is a $25 billion industry, and currently one of the most popular real estate investments anywhere. So popular, cap rates continue to drop as more investors try to get in on a good thing. For this reason, it's important for investors contemplating an investment in National Retail Properties, or competitors like Realty Income (NYSE:O) and Excel Trust (NYSE:EXL), to realize that in some years, all of the growth will come from dividends with no capital appreciation. Over the last 10 years, it's averaged about 50/50.
The Bottom Line
National Retail Properties is a perfect stock to implement dollar-cost averaging of a sort. Buy at $25 and then add to your position at the end of every December where its stock is down for the year. In 10 years, I'm confident you'll have done well.
Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!
by
Will Ashworth
Will Ashworth lives and works in Toronto, Canada. He's worked in and around the financial services industry for much of his adult life. He loves investing and is passionate about helping others learn how to put their money to work.
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