Better Dividend Stock: NNN REIT vs. Realty Income

As the bull market continues to roar, investors are seeking stable and growing income streams. Two top dividend stocks in the real estate investment trust (REIT) sector, NNN REIT (NNN) and Realty Income (O), have caught the eye of many income-focused investors. Both REITs have impressive track records of dividend growth, but which one is the better choice for your portfolio? Let's dive into the details to find out.

Portfolio Focus and Diversification

NNN REIT focuses exclusively on single-tenant net lease retail properties, targeting growing retailers with limited access to credit. This strategy allows NNN REIT to generate stable rental income that increases annually, either at a fixed rate or in line with inflation. However, this focus on a single sector may expose investors to more risk if the retail industry faces headwinds.

Realty Income, on the other hand, has a much more diversified portfolio. It owns over 15,450 properties in various industries, including retail, industrial, and gaming, across eight countries. This diversification helps mitigate risk by spreading investments across multiple sectors and geographies.



Dividend Payout Ratios and Growth

NNN REIT has a higher dividend payout ratio (75.7%) compared to Realty Income (52.7%), indicating that Realty Income retains more earnings for reinvestment. Additionally, Realty Income has a higher dividend growth rate, having increased its dividend 123 times since 1994, compared to NNN REIT's 35 consecutive years of dividend increases. This demonstrates a more consistent and sustainable dividend policy for Realty Income.

Debt Levels and Credit Ratings

Both NNN REIT and Realty Income have strong balance sheets, but Realty Income has a slight edge. As of 2024, Realty Income has a lower debt-to-equity ratio (0.45) compared to NNN REIT (0.52), indicating less leverage. Additionally, Realty Income boasts a higher credit rating (A3/A-) compared to NNN REIT (BBB+/Baa1), suggesting lower risk.



Conclusion

While both NNN REIT and Realty Income are top dividend stocks, Realty Income edges out NNN REIT due to its greater diversification and faster growth. Realty Income's diversified portfolio, lower dividend payout ratio, higher dividend growth rate, and stronger balance sheet make it the better choice for income-focused investors seeking a more stable and sustainable dividend stock.

As the bull market continues to thrive, investors should consider adding Realty Income to their portfolios to benefit from its impressive dividend growth and strong fundamentals. However, it's essential to conduct thorough research and consider your investment goals and risk tolerance before making any investment decisions.

Stay informed and adaptable to maintain a competitive edge in the ever-evolving financial landscape.