Real estate investment trust (REIT) National Retail Properties (NNN -0.46%) has one of the best dividend records of any of its peers, including Realty Income. But there's one thing wrong with this net-lease landlord that has always stopped me from jumping aboard. Here's what it is, and why it's such a big deal.

Slow and steady

National Retail Properties has increased its dividend annually for over three decades. Although passing cash through to investors is the core purpose of the real estate investment trust corporate structure, the longevity of the streak shows a massive commitment to shareholders that few others can match. To put a number on that, it's just one of three REITs with a dividend streak of that length. Now add in National Retail's 5.7% yield, which is toward the highest levels of the past decade, and it's easy to understand why investors would be interested in this REIT. 

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Adding to the allure is that it uses a net-lease approach. That means that its tenants are responsible for most of the costs of the properties they occupy. National Retail, and other net-lease REITs, just have to sit back and collect rents, earning the difference between their cost of capital and the rents they charge. That's obviously an oversimplification, but you get the idea -- it's a pretty low-maintenance approach to owning property. 

While times are tough today in the REIT sector generally, National Retail Properties is highly likely to muddle through in one piece. In fact, it even increased its dividend in July. That's a clear show of strength as the company works through the COVID-19 impacts that have resulted in many REITs trimming or even eliminating their dividends. 

So what's not to like?

But I won't be buying National Retail Properties anytime soon, for the same reason that I haven't bought it yet. In fact, the reason for my reluctance to invest here is specifically stated in the company's name: Retail. I don't have anything against retail properties per se, but National Retail Properties only buys single-tenant retail assets. There's not much diversification that can be built into that business model, and that troubles me. Diversification is just as important for a company as it is for your personal investment portfolio.

Sure, the REIT's collection of properties is spread across many different business sectors, from convenience stores to banks. And its investments span the continental United States. But they are all retail assets. My preference is for a net-lease REIT with a bit more diversification. W.P. Carey (WPC -1.10%), for example, has a property portfolio that includes industrial (24% of the portfolio), office (23%), warehouse (22%), retail (17%), self-storage (5%), and a sizable "other" category (the rest). 

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The risk of National Retail Properties' highly focused portfolio has been on clear display during the pandemic. In April, despite a high occupancy rate, the company only collected around 50% of the rent it was owed. Rent collection in the second quarter overall averaged just 69%. That collection rate jumped to 84% in July, which is a material improvement, but still means that 16% of rents aren't getting collected. W.P. Carey's rent collections never fell below 96% during the pandemic. One of the key reasons for the difference is that the retail sector was one of the hardest hit by the economic shutdowns related to COVID-19. 

Just not for me

I believe we will eventually get past the coronavirus, and that National Retail Properties, which is a well-run REIT, will thrive over the long term. But I still don't want to own a landlord that's so highly focused on just one property type. I've done that before, and it hasn't worked out well for me. When it comes to the net lease space, my favorite pick is W.P. Carey, in large part because of its highly diversified investment approach.