Better Dividend Stock: Realty Income vs. NNN REIT

Realty Income (NYSE: O) and NNN REIT (NYSE: NNN) have two of the best dividend growth track records in the real estate investment trust (REIT) sector. NNN REIT has increased its dividend for 36 straight years, while Realty Income's streak is up to 31 years in a row. They also offer attractive dividend yields (5.3% for Realty Income and 5.6% for NNN REIT).

Here's a look at which of these high dividend REITs is the better buy for income investors right now.

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How are these REITs similar?

Realty Income and NNN REIT share some striking similarities. Both focus on owning single-tenant net-lease properties. Net leases produce very stable rental income because tenants cover all property operating costs, including real estate taxes, routine maintenance, and building insurance. They also focus primarily on leasing properties to retail tenants. NNN REIT focuses exclusively on owning retail real estate, while 79% of Realty Income's rent comes from retailers.

Both REITs also have very strong financial profiles. Realty Income has a fortress balance sheet (A3/A- credit ratings with a 5.4 times leverage ratio) and a conservative dividend payout ratio (75.2% at the end of last year). Meanwhile, NNN REIT's balance sheet is nearly as strong (BBB+/Baa1 credit ratings and a 5.6x leverage ratio with a sector-leading 10.8-year weighted-average debt maturity). It also has an even more conservative payout ratio (68.8%). Both REITs have the financial flexibility to continue investing in income-producing real estate.

How are these REITs different?

While there are many similarities between these two REITs, there are also key differences. Realty Income has a much more diversified portfolio. In addition to owning retail properties, it also invests in industrial (15.4% of its rent), gaming (3.1%), and other properties, such as data centers (2.4%). Realty Income also has greater geographic diversification, owning properties in several European countries and recently expanding into Mexico. Realty Income's diversification has given it greater flexibility to focus on the best investment opportunities. For example, it invested more heavily in Europe last year, where it achieved higher initial weighted-average cash yields. Realty Income also has more diversified funding sources, having launched a U.S. Private Capital fund and several strategic investment partnerships in the past year.

There are also key differences regarding their dividends. NNN REIT pays quarterly dividends, as most companies do, while Realty Income pays monthly dividends. Meanwhile, NNN REIT typically raises its dividend once a year, while Realty Income increases its dividend much more frequently. It recently declared its 134th dividend increase since its public market listing. It has also raised its payout for 114 quarters in a row.

Realty Income stands out

NNN REIT is a terrific dividend stock. It's a rock-solid option for investors seeking a slightly higher current yield backed by high-quality retail real estate. However, Realty Income stands out as the better buy due to its more diversified portfolio, stronger balance sheet, and steadily rising monthly dividend.

Matt DiLallo has positions in NNN REIT and Realty Income. The Motley Fool has positions in and recommends NNN REIT and Realty Income. The Motley Fool has a disclosure policy.