It looks like National Retail Properties, Inc. (NYSE:NNN) is about to go ex-dividend in the next 4 days. Ex-dividend means that investors that purchase the stock on or after the 30th of July will not receive this dividend, which will be paid on the 15th of August.
National Retail Properties's next dividend payment will be US$0.52 per share, and in the last 12 months, the company paid a total of US$2.00 per share. Based on the last year's worth of payments, National Retail Properties has a trailing yield of 3.9% on the current stock price of $52.6. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. So we need to check whether the dividend payments are covered, and if earnings are growing.
Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. It paid out 87% of its earnings as dividends last year, which is not unreasonable, but limits reinvestment in the business and leaves the dividend vulnerable to a business downturn. We'd be concerned if earnings began to decline. That said, REITs are often required by law to distribute all of their earnings, and it's not unusual to see a REIT with a payout ratio around 100%. We wouldn't read too much into this. A useful secondary check can be to evaluate whether National Retail Properties generated enough free cash flow to afford its dividend. Dividends consumed 71% of the company's free cash flow last year, which is within a normal range for most dividend-paying organisations.
It's positive to see that National Retail Properties's dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.
Have Earnings And Dividends Been Growing?
Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. This is why it's a relief to see National Retail Properties earnings per share are up 6.9% per annum over the last five years. While earnings have been growing at a credible rate, the company is paying out a majority of its earnings to shareholders. If management lifts the payout ratio further, we'd take this as a tacit signal that the company's growth prospects are slowing.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. In the past 10 years, National Retail Properties has increased its dividend at approximately 3.2% a year on average. It's encouraging to see the company lifting dividends while earnings are growing, suggesting at least some corporate interest in rewarding shareholders.
To Sum It Up
Is National Retail Properties an attractive dividend stock, or better left on the shelf? Earnings per share growth has been unremarkable, and while the company is paying out a majority of its earnings and cash flow in the form of dividends, the dividend payments don't appear excessive. In summary, it's hard to get excited about National Retail Properties from a dividend perspective.
Curious what other investors think of National Retail Properties? See what analysts are forecasting, with this visualisation of its historical and future estimated earnings and cash flow .
If you're in the market for dividend stocks, we recommend checking our list of top dividend stocks with a greater than 2% yield and an upcoming dividend.
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