NNN REIT (NNN -0.49%) has quietly maintained an excellent dividend track record. The retail-focused real estate investment trust (REIT) paid its shareholders its first dividend increase in 1990. Since then, it has not stopped increasing its payouts and recently recorded a dividend increase for the 35th year in a row.

That’s an impressive record considering we’ve had four recessions during that time period. Economic downturns are typically times when companies become more conservative, either pausing dividend growth or cutting their payouts to conserve cash. Because of that, only two other REITs and fewer than 80 publicly traded companies have reached that milestone. Here’s a look at what it takes for the Retail REIT to continue to increase its payout – currently 5% – and why this steady upward trend is likely to continue.

Designed for stability

NNN REIT has a very simple Strategy. The REIT invests in single-tenant Net leasing retail properties across the country. The company signs long-term triple-net leases (NNN) with high-quality retailers. This lease structure leads to very stable rental income, as the tenant has to pay for building insurance, maintenance and property taxes. This Rental agreements usually also contain clauses for annual rent increases, which result in steady growth in rents.

The REIT has a diversified portfolio of retail properties. It owns nearly 3,550 properties in 49 states and leases them to 375 national and regional tenants in more than 35 Trading linesFor example, the top five tenant industries include auto services (16.7% of annual base rent), grocery stores (16.2%), limited-service restaurants (8.5%), full-service restaurants (8.4%), and family entertainment centers (6.6%).

In the meantime, NNN REIT pays a conservative percentage of its stable income in the form of dividends. Dividend payout ratio was less than 70% of adjusted funds from operating activities (FFO) in the first half of 2024. That’s a very conservative number for a REIT. It gives the REIT a nice cushion while allowing it to retain a decent amount of cash to acquire additional income-producing retail properties.

The REIT also has a conservative balance sheet with a strong investment grade credit rating. It has a low Gearing ratio and uses primarily long-term, fixed-rate debt. It also has well-staggered debt maturities. These characteristics give it a lot of flexibility in financing new acquisitions.

Built to survive recessions

Despite the impact that recessions can have on retail, NNN The REIT portfolio has weathered the recent economic storms without any problems. Its occupancy has never liked below 96.4% over the last 20 years (including two severe recessions). For comparison: In the wake of the financial crisis (2009-2010), capacity utilization in the entire REIT sector fell to around 90% and to around 87% in the pandemic year 2020.

In other words, tenants stayed in business and continued to pay higher rents than most other REITs during a recession. That’s because many tenants see stable or even improved demand during a downturn as consumers, for example, keep their cars longer (benefiting car service) and switch to lower-cost options (convenience stores and limited-service restaurants).

The REITs strong financial The profile also allows the company to continue to grow its portfolio during a recession. It can use its liquidity and balance sheet flexibility to continue investing when it is harder to access debt capital. For example, could still to make acquisitions during the Great Recession and the pandemic-related crisis, at a time when other REITs struggled to raise capital to finance their transactions.

NNN REIT has put itself in an excellent position to weather the next economic storm. Thanks to the long-term nature of its leases, there are minimal upcoming lease expirations (just 4.5% through 2025). Because of this and the overall durability of its portfolio, it should continue to generate steady cash flow.

Meanwhile, the company has raised a lot of liquidity this year to increase its financial flexibility. For example, it expanded its credit facility from $1.1 billion to $1.2 billion and extended the maturity to 2028, sold 20 properties for $85.8 million, raised $34.8 million through the sale of stock, and issued $500 million in 10-year debt. These actions allowed the company to invest $235 million in new real estate investments and repay $350 million in maturing debt, while maintaining one of the most conservative balance sheets in the industry.

Ready for the next recession

NNN REIT has built its business around delivering consistent results, which has enabled the REIT to increase its dividend for 35 consecutive years, including four recessions. Given its long-lasting portfolio and conservative financial profile, it is in an excellent position to weather the next economic storm. For this reason, it is a great Stocks for anyone looking for an attractive and steadily increasing source of income that should easily survive future recessions.