The net lease real estate investment trust (REIT) is a particularly solid business model, and has been applied across numerous property sectors. Some investors looking to add such a company to their portfolio might simply default to the niche's biggest name, but actually, they might be better off picking a pair of smaller ones. If you're looking to put some cash to work in the stock market today, consider W.P. Carey (WPC -0.13%) and National Retail Properties (NNN -0.10%).

Simple is good

Both W.P. Carey and National Retail Properties own single-tenant properties, and their tenants are responsible for most of the operating costs of the assets they occupy. With a large enough portfolio, this is a very low risk and relatively low maintenance way to run a real estate investment trust. That said, the two businesses take very different approaches when it comes to property selection.

A person making it rain 100 dollar bills.

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National Retail Properties is 100% focused on retail assets in the United States, with a penchant for service-based and necessity properties. It currently has a portfolio of around 3,200 assets. In recent years, it has made a specific effort to avoid businesses that could be disrupted by the rise of e-commerce. It's not a bad REIT by any stretch -- in fact, it has increased its dividend annually for 32 consecutive years. And it's not just a Dividend Aristocrat -- it also has a longer streak of payout hikes under its belt than larger peer Realty Income (O -0.03%), the bellwether of the net lease industry.

The only problem is that National Retail Properties' single-sector focus -- despite its long-term success -- creates concentration risk. For example, in the early days of the coronavirus pandemic, the REIT's rent collection rates plunged toward 50%. It muddled through, and actually increased its dividend last year, but investors had to suffer through a very trying time with little to no information about how the company would fare. So, alone, National Retail Properties might not be the best addition to your portfolio.

Add some diversification

That's where W.P. Carey comes in. It's a good complement to a holding like National Retail Properties. The truth is that retail is one of the largest net lease sectors, so having exposure to this area, even a relatively large amount, isn't terrible. But being too heavily invested in retail isn't a "sleep well at night" strategy. W.P. Carey only gets around 17% of its rents from retail tenants. And even there, a good portion of those properties are in Europe. So W.P. Carey pairs pretty nicely with domestic-focused National Retail Properties without putting too much retail exposure into your portfolio.

NNN Dividend Yield Chart

NNN Dividend Yield data by YCharts

The rest of W.P. Carey's portfolio is spread across industrial (25% of rents), warehouse (24%), office (21%), and self storage (5%), with a large "other" category rounding things up to 100%. The foreign component of the portfolio (mostly European properties), meanwhile, accounts for roughly 37% of rents. It is one of the most diversified REITs you can find.

And while W.P. Carey isn't a Dividend Aristocrat yet, it has increased its dividend every single year since its IPO in 1998. But what's perhaps most interesting is that in 2020, its rent collection rate never dropped below 96%. Why? Because most of what it owns was outside the hard-hit retail space. Put it together with National Retail Properties and you've got a duo that can deliver steady performance to your portfolio.

Bringing it together

The really interesting thing here comes when you compare these two REITs to net lease bellwether Realty Income with its 4.1% dividend yield. National Retail Properties' yield at the current share price is 4.5%, but it has a long history of tracking along with the yield of Realty Income, suggesting that the stock is relatively cheap today. And W.P. Carey, which has historically had a higher yield than those two, offers some extra income with its 5.4% yield. However, Realty Income is increasingly venturing into Europe, which makes its profile look more and more like that of W.P. Carey, so perhaps it will close the yield gap over time.

In sum, the combination of National Retail Properties and W.P. Carey could make a good addition to your portfolio if you are looking to add some REIT exposure, both because of their actual businesses and the way their shares are priced in the market right now.