Is NNN a Good Stock to Buy for Dividends?

Investing in the stock market involves evaluating numerous factors to determine a company’s potential. For those considering income-generating assets, Real Estate Investment Trusts (REITs) often come into focus due to their unique structure and dividend distribution requirements. This article explores National Retail Properties (NNN), a prominent REIT, to provide an overview for evaluating it as a potential stock investment for dividend purposes. The discussion will cover NNN’s operational framework, financial health, dividend history, and broader considerations for investors.

Understanding NNN’s Business Model

National Retail Properties (NNN) operates as a Real Estate Investment Trust specializing in the acquisition, ownership, and management of single-tenant retail properties across the United States. NNN generates income primarily by leasing space and collecting rent from its diverse portfolio of properties. This structure allows investors to gain exposure to income-producing real estate without directly owning or managing physical properties.

NNN’s core business model is built around the “triple-net lease” (NNN lease) structure. Under a triple-net lease, the tenant assumes responsibility for nearly all property-related expenses, including real estate taxes, building insurance, and maintenance costs, in addition to paying a base rent. This arrangement significantly reduces the landlord’s operating expenses and management responsibilities, contributing to a stable and predictable income stream for NNN.

The company’s portfolio is strategically diversified across various retail sectors and geographic locations to mitigate risks associated with specific tenants or regional economic downturns. NNN primarily targets established, creditworthy tenants operating in essential or necessity-based retail industries such as convenience stores, restaurants, automotive services, and entertainment venues. These types of tenants often demonstrate resilience across economic cycles, contributing to the stability of NNN’s rental revenue. The leases are typically long-term, ranging from 10 to 20 years, further enhancing the predictability of NNN’s cash flows.

Key Financial Performance Indicators

Evaluating a REIT like National Retail Properties requires understanding financial metrics beyond traditional net income, given the unique accounting and tax rules for real estate. Funds From Operations (FFO) and Adjusted Funds From Operations (AFFO) are widely used profitability measures for REITs. FFO is calculated by adding back depreciation and amortization to net income, as these are non-cash expenses that do not reflect a property’s true economic performance or cash generation. AFFO further refines FFO by making adjustments for recurring capital expenditures and straight-line rent adjustments, providing a more accurate representation of the cash available for distribution to shareholders.

National Retail Properties has demonstrated consistent revenue growth. For the fiscal year 2024, the company reported annual revenue of approximately $0.869 billion, marking a 4.97% increase from 2023. The trailing twelve months (TTM) revenue as of June 30, 2025, reached $0.895 billion, representing a 4.82% year-over-year increase. In the second quarter of 2025, NNN reported core FFO of $0.85 per share, with AFFO per diluted share increasing by 1.2% year-over-year to $0.85. Management has also raised its full-year 2025 AFFO guidance to a range of $3.40 to $3.45 per share.

Occupancy rates are a direct reflection of a REIT’s operational efficiency and demand for its properties. NNN has consistently maintained a high occupancy rate, reporting 98.0% as of the second quarter of 2025. Historically, between 2004 and 2024, NNN’s occupancy never dropped below 96.4%, indicating strong demand for its single-tenant retail properties. This sustained high occupancy underscores the stability of its rental income stream.

NNN maintains a strong credit profile, holding a BBB+ credit rating from S&P. This investment-grade rating reflects the company’s manageable debt levels and its ability to meet financial obligations. A key metric for assessing debt management is the fixed-charge coverage ratio, which for NNN stands at a solid 4.2x. This ratio indicates the company’s capacity to cover its fixed charges, including interest payments and preferred dividends, with its earnings. Furthermore, NNN has well-staggered debt maturities, which helps to mitigate the impact of interest rate fluctuations on its borrowing costs. The net debt to annualized EBITDAre ratio, another measure of leverage, was reported at 5.7x as of Q2 2025.

Dividend Characteristics and History

National Retail Properties has established a reputation for its consistent and growing dividend payments, a primary draw for many income-focused investors. The company boasts an impressive track record of increasing its annual dividend for 36 consecutive years. This extended period of dividend growth places NNN in an elite group of companies known as “Dividend Aristocrats,” signifying a long-term commitment to returning capital to shareholders.

The current annual dividend for NNN is $2.40 per share, distributed quarterly at $0.60 per share. This translates to a forward dividend yield of approximately 5.66% to 5.69% as of late August 2025. For REITs, assessing dividend sustainability requires looking at the payout ratio relative to FFO or AFFO, rather than traditional net income, due to the non-cash expenses like depreciation.

NNN’s dividend payout ratio is approximately 69% to 71% of its Adjusted Funds From Operations (AFFO). A payout ratio in this range indicates that the company retains a portion of its cash flow for reinvestment in its business while still distributing a significant amount to shareholders. This suggests a balance between current income distribution and future growth potential, contributing to the long-term sustainability of the dividend. The triple-net lease model plays a significant role in the predictability and stability of NNN’s dividend payments, as tenants are responsible for property-level expenses, stabilizing cash flow and supporting consistent dividend growth.

Factors for Investment Consideration

NNN’s structure as a triple-net lease REIT provides a predictable income stream, which aligns well with investment goals focused on income generation and long-term stability. The reliable cash flows from long-term leases with diversified tenants can contribute to a consistent return profile. This characteristic may be appealing for investors seeking regular distributions rather than rapid capital appreciation.

External factors, such as interest rate movements, can influence the performance of REITs. Rising interest rates can increase borrowing costs for REITs, potentially impacting their profitability and the funds available for distribution. Higher rates can also make alternative income-generating investments, like bonds, more attractive, potentially diverting investor interest from REITs. However, it is also true that interest rate increases often signal a strengthening economy, which can lead to higher demand for real estate, increased occupancy rates, and stronger rent growth, ultimately benefiting REIT earnings and dividends. NNN’s strategy of utilizing fixed-rate debt and well-staggered maturities can help insulate it from some of the immediate pressures of rising rates.

Trends within the retail real estate market also warrant consideration. Despite past narratives of a “retail apocalypse,” the sector has shown resilience. Recent data indicates that retail sales have been increasing, and retail property sales volumes have shown growth. Vacancy rates in the retail sector have remained low, with announced openings of new retail locations now outpacing closures. These trends suggest a more stable, and in some areas, growing environment for retail properties. NNN’s focus on necessity-based and service-oriented retail tenants positions it favorably within these evolving market dynamics.

Ultimately, the decision to invest in NNN, or any stock, hinges on personal financial goals and risk tolerance. While NNN’s strong dividend history and stable business model offer potential benefits for income-seeking investors, all investments carry some degree of risk. Diversification across different asset classes and investment types remains a prudent strategy to manage overall portfolio risk.