As an investment analyst, I’m always on the lookout for exciting new opportunities in the ever-expanding world of REITs.
But sometimes, sticking with tried-and-true picks is the wisest move, especially when the existing investments continue to shine. Today is one of those times. We have diligently selected the REITs in our portfolio, and to warrant a new investment, it must surpass the attractiveness of our current holdings or bring a compelling new aspect to diversify and optimize our portfolio’s risk-to-reward profile.
Hence, let’s delve into two of our favorite REITs for accumulation today:
NNN REIT (NNN)
Our analyst, R. Paul Drake, described NNN as “almost perfect” for valid reasons. Key attributes highlighted previously include an investment-grade BBB+ credit rating, substantial lack of secured debt, negligible near-term debt maturities, and a sustained very high occupancy of 99.4%. Notably, it boasts 33 years of increased dividends and has proven to generate above-average returns with below-average risk and superior income for over three decades. The impressive attributes go on and on.
I would add to its robust traits a focus on properties with low rents, a discount to replacement cost, and high land value per asset to mitigate risks in rare vacancies. Moreover, the REIT’s emphasis on high-growth states and defensive concepts provides a solid foundation for its long-term stability.
Remarkably, NNN is now priced at a historically low valuation of 13.4x FFO and offers a high 5.3% dividend yield with a low 69% payout ratio. Anticipating roughly 4-5% FFO per share growth annually, we anticipate double-digit total returns when considering today’s high dividend yield. Furthermore, the potential for significant upside exists as its valuation is expected to expand as interest rates decline back to historic levels. These factors could result in an expected annual total return of 15-20%.
Given the REIT’s resilient performance during the pandemic, we believe that NNN offers an exceptional risk-to-reward profile for conservative investors.
EPR Properties (EPR)
EPR Properties (EPR), a net lease REIT like NNN, has its own merits. It specializes in experiential
