At a time when the SPDR S&P 500 Index ETF (NYSE: SPY) is yielding a paltry 1.5% and the average real estate investment trust (REIT), using Vanguard Real Estate ETF (NYSE: VNQ) as a proxy, is yielding 4.1%, it would seem pretty attractive to add a real estate stock with a yield of 4.5%. And that’s the lowest yield of this trio of December buys, which includes Realty Income (NYSE: O), National Retail Properties (NYSE: NNN), and W.P. Carey (NYSE: WPC).

All three are very similar in some ways — and very different in others. Here’s a quick look at each to help you decide if one or more should end up in your dividend portfolio this month.

The bellwether

Realty Income is one of the leading names in the net lease space each of these three REITs are in. A net lease REIT generally owns single-tenant properties for which the lessees are responsible for most of the operating costs of the properties they occupy. It is generally considered a relatively low-risk business model in the REIT space. Realty Income, meanwhile, has a long history of success behind it, best seen in its more than a quarter century-long streak of annual dividend increases.

Adding to the allure here is that Realty Income pays its dividend monthly. So buying this REIT is pretty close to replacing a paycheck. With a portfolio of nearly 6,600 properties, it’s among the largest names in the net lease sector, too. Although roughly 85% of its portfolio is dedicated to retail assets, the 15% that’s spread across office, industrial, and an opportunistic investment in vineyards adds some diversification to the mix. Meanwhile, the REIT’s occupancy has never dipped below 96% — not even during the 2007 to 2009 recession or the coronavirus pandemic.

The problem here is that investors are well aware of how strong a business Realty Income has — and, in a related story, it’s almost always dearly priced. With a yield of 4.6%, it’s nowhere near as cheap as it was during the depths of the early 2020 bear market. But that yield is around the middle of the road over the past decade or so. For long-term investors willing to pay a fair price for a great company, Realty Income could be worth a closer look today.

Major headwinds

Next up is National Retail Properties, another iconic name in the net lease space. It has amassed a streak of annual dividend increases over 30 years long. The yield today is around 5.5%. Before you jump into this REIT, thinking it’s a better option than Realty Income because of these dividend stats, step back and read on.

Unlike Realty Income, National Retail Properties does one thing and one thing only: buy single-tenant retail assets. It has 100% of its eggs in a single basket. Historically, that’s been a pretty stable basket, but the coronavirus pandemic has exposed the weakness in this model. As COVID-19 cases started to mount in early 2020, National Retail Properties was having trouble collecting even half of its rents. The situation is much better now, with collection rates up to 94% in October. However, it shows this REIT isn’t as low-risk as some investors may have thought.

National Retail Properties, which in a sign of strength increased its dividend in the third quarter, should muddle through this rough patch just fine. In fact, with a three decade-long dividend streak, it’s clearly been through some ups and downs. But, given its highly focused retail portfolio, it’s probably not a great choice for really conservative investors.

That said, if you like turnaround opportunities, National Retail Property’s yield has historically been around the same as Realty Income’s. If National Retail Properties muddles through this downturn (highly likely), that relationship is likely to reassert itself, meaning the stock could be cheap right now.

All over the place

The last name here is also the highest yielder: W.P. Carey. Like Realty Income and National Retail Properties, it’s a net lease REIT, but it operates in a totally different manner. The biggest difference shows up in W.P. Carey’s retail exposure, which makes up just 17% of its rent roll. The rest of its roughly 1,200-property portfolio is diversified across industrial (24% of rents), warehouse (23%), office (23%), and self-storage (5%) assets, with a fairly large “other” category rounding things up to 100%. That’s a huge amount of diversification.

But it doesn’t stop there. W.P. Carey also generates around 37% of its rents from outside the United States, largely from Europe. This is one of the most diversified REITs you can buy, and the results speak for themselves. W.P. Carey has increased its dividend for more than two decades. Yes, that’s less than either of the two REITs above, but that annual streak starts in 1998 — the year W.P. Carey went public. It can stand toe-to-toe on the dividend front with Realty Income and National Retail Properties.

The best part is that W.P. Carey’s yield is nearly 6% today. But before picking this one, there are some caveats here. For starters, W.P. Carey tends to be opportunistic. That means it will often be buying when others are on the sidelines, and it’s willing to work with lower-quality companies it believes are stronger financially than they appear.

Further, it has gone through a couple of big corporate changes since its IPO, including shifting from a partnership to a REIT and, more recently, working to exit an asset management business focused on non-traded REITs. Though nearly complete, the latter effort is still ongoing. And some investors are concerned about W.P. Carey’s European exposure, given the global pandemic. But with a 99% collection rate in September and a pandemic low of just 96% it’s hard to see that as too big of a concern.

All in, W.P. Carey is probably the best all-around option. You’ll just need to be willing to go with the flow as you monitor the REIT’s unique approach.

At least one should fit the bill

You probably won’t want to own all three of these net lease REITs. But one is likely to pique your interest. For conservative types, Realty Income and its 4.6% yield is the safe bet. Investors willing to take on a bit more risk for a higher 5.5% yield might want to play the turnaround at National Retail Properties. For investors looking to maximize their income, highly diversified W.P. Carey and its nearly 6% yield will definitely be of interest, noting that it tends to do things a bit differently than its closest peers.



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