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Time to Buy National Retail Properties yet? Why only one CAPS star?

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December 10, 2009 – Comments (5) | RELATED TICKERS: NNN

National Retail Properties (NNN) pulled back roughly10% from its September high. It yields 7.3% and has adequate FCF to support its dividend, which has grown every year for the past 10 years (source: S&P reports). It's rated a Buy by TheStreet.com and has outpaced the S&P500 by roughly 15% over the past year, not including dividends (source: eyeballing charts on TDAmeritrade.com and yahoo/finance).

TheStreet.com ranks NNN in the top 20% of all companies they cover on growth, the top 10% on income, and the upper 40th percentile on solvency (source: The Street.com company report). NNN also has a good story, specializing in leasing to single tenant and convenience store retailers. Although REITs bear risks, NNN has weathered the storm and looks attractive for dividends and (to a lesser extent) growth.

Can anyone, perhaps someone who is betting against NNN or perhaps a dividend investor, explain why the lowly "one star" ranking for this attractive-looking, income-producing, well-regarded steady performer?

I am long NNN and, unless the fundamentals change, I am going longer as it goes lower.

5 Comments – Post Your Own

#1) On December 10, 2009 at 8:57 PM, UltraContrarian (32.52) wrote:

The main negative I see is 10 consecutive quarters of lower earnings. But it looks like this trend should turn around soon since "net income from discontinued business" which has dropped like a rock over the last couple of years is getting pretty close to 0.

I agree with you, NNN is too solid to be a 1 star stock. I think it's above average but I only want to own stocks that are exceptionally priced. Among REITs I'd be more inclined to buy HRP and MSW among others.

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#2) On December 11, 2009 at 9:38 AM, silverminer (41.12) wrote:

The commercial real estate domino in this financial crisis has yet to fall, but default rates are rising. That domino is likely to set off a new round of dysfunction in related derivatives markets, and send investors fleeing from the REITs in turn. I think a lot of investors are keen to keep real estate out of their portfolios for several more years, but especially commercial real estate.

When I walk the streets of my town and others in my area, I see a declining trend in retail and convenience store lease demand. A convenience store around the corner from me closed last week, and another down the road closed the week before that. Some commercial strips within many American towns are starting to feel a little like a ghost town. I don't know what it's like in your area, but for me to feel good about an investment I want to see supporting anecdotal observations when I see the relavant industry in action. When I focus in on retail leasing, I personally see some drak years ahead.

I would grant it only one star not because of anything specific to the company, but because even a solid company swimming upstream against a deleveraging deluge will be swiftly carried to sea.

Just my $0.02, and my $0.10 for charity.

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#3) On December 11, 2009 at 10:25 AM, lemoneater (86.84) wrote:

I have too many dead malls nearby to wish to invest in commercial real estate at this time. I have one REIT in my portifolio. NHI National Health Investor. They have just announced a special dividend of 10 cents for shareholders of record December 31.

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#4) On December 14, 2009 at 3:31 PM, Stocklovr (98.57) wrote:

For what it's worth, I too own NNN and have for a couple of years. I see the empty stores around too but I think it's a mistake to lump all commercial REITS together.

If the next shoe to drop is commercial REITS then I want to own the strongest, healthiest that I can find. They are the ones buying properties from all the distressed sellers at major discounts! I believe that describes NNN.

If all REITS drop again, then I'll be very happy because I'll be able to add shares at lower prices -- just like I did through the last crash.

As a long-term, dividend investor, I enjoyed buying this and other dividend payers at significant discounts. If this stock doesn't budge an inch for the next five years, I'm perfectly ok with that because, for me, it's all about the passive cash flow, not daily mood swings of the market in general. That's a game for other Fools.

-Slvr

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#5) On December 14, 2009 at 7:29 PM, GirlScoutDad (97.66) wrote: