Realty Income(NYSE: O) and NNN REIT (NYSE: NNN) are elite dividend stocks. The real estate investment trusts (REITs) have each increased their dividends for at least the last 30 years. They both currently offer dividend yields of around 5.5%, well above the S&P 500‘s (SNPINDEX: ^GSPC) yield (1.2%).
The retail-focused REITs share a few other similarities. Because of that, most investors likely would only want to own one of them in their portfolio. Here’s a closer look at these elite dividend stocks to see which is better to buy right now.
Realty Income and NNN REIT have very similar business models. The REITs focus on owning freestanding properties secured by long-term net leases. That lease structure requires tenants to cover all of a property’s operating costs, including routine maintenance, real estate taxes, and building insurance. Because of that, the REITs generate very low volatility cash flow that tends to rise steadily each year as lease rates escalate.
However, there are a couple of key differences between their portfolios. NNN REIT currently owns about 3,550 properties (worth $12.9 billion) across 49 states. It leases its properties to over 375 tenants in 37 lines of trade (all retail-related) with an average remaining term of 10 years. Its top tenant lines of trade are:
Automotive service (16.8% of its annual base rent)
Convenience stores (15.9%)
Restaurants (8.4% limited service and 8.3% full service)
It focuses on supporting growing retailers that need capital to fund their continued expansion, many of which lack access to credit (only 15% of its tenants have investment-grade credit ratings). Its top tenants are 7-Eleven (4.6%), Mister Car Wash (4.1%), and Dave & Buster’s (3.9%).
Realty Income has a much larger and more diversified portfolio. It’s the seventh biggest REIT in the world, with $58 billion in real estate in eight countries. It owns over 15,450 properties leased to more than 1,550 clients in 90 industries.
While Realty Income has a retail focus (79.4% of its annual base rent), it also has exposure to industrial real estate (14.6%), gaming (3.2%), and other properties like data centers (2.8%). Its top tenant industries are grocery (10.4%), convenience (9.4%), and dollar stores (6.5%). Realty Income aims to be the real estate partner to the world’s leading companies, many of which have strong credit (32% of its rent comes from investment-grade tenants). Notable names among its top 20 tenants include FedEx, Walmart, and Home Depot.
To summarize, NNN REIT focuses exclusively on owning properties in the U.S. leased to growing retailers that need capital to fund their continued expansion. Realty Income has a much more diversified approach and focuses on partnering with larger companies as their landlord.
Another factor investors should consider when comparing similar dividend stocks is their financial profiles. Here’s how these two elite REITs stack up against each other:
Monthly Dividend Stock
Dividend Yield
Dividend Payout Ratio
Leverage Ratio
2024 AFFO Growth Rate (Midpoint)
Price-to-AFFO
NNN REIT
5.4%
69%
5.2x
2.1%
12.8x
Realty Income
5.6%
75.1%
5.4x
4.8%
13.5x
Data source: Realty Income and NNN REIT. Table by author.
As that chart shows, the REIT’s are pretty similar. NNN REIT has a slightly lower dividend payout ratio and leverage ratio. It has a solid investment-grade credit rating (BBB+/Baa1) and well-laddered debt maturities (its 12.3-year weighted average debt maturity is one of the longest in the sector).
Realty Income’s financial profile is just as strong, if not better. It’s one of only eight REITs in the S&P 500 with two A3-A- credit ratings or better.
If there is one notable difference, Realty Income is growing faster. It expects its adjusted funds from operations (FFO) to increase by nearly 5% this year, more than double NNN REIT’s expected growth rate. That’s in line with its historical average, a rate it expects to maintain in the future. A big driver of its faster growth is its greater diversification and scale, which opens the doors to more expansion opportunities.
Realty Income and NNN REIT are two of the best dividend-paying REITs. They have each grown their payments for at least 30 straight years, and they back their payouts with strong financial profiles.
However, there are a couple of notable differences. Realty Income has a more diversified portfolio, which, along with its greater scale and balance sheet strength, allows it to grow faster. Those features give it the edge over NNN REIT as the better dividend stock to buy between the two.
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Matt DiLallo has positions in FedEx, Home Depot, and Realty Income. The Motley Fool has positions in and recommends FedEx, Home Depot, Realty Income, and Walmart. The Motley Fool recommends Dave & Buster’s Entertainment. The Motley Fool has a disclosure policy.
