Annaly Capital Management (NLY +0.82%) is an alluring dividend stock. The mortgage-focused real estate investment trust (REIT) currently yields around 13%, 10 times higher than the S&P 500's dividend yield (1.3%).
However, investors should forget about Annaly Capital. Its big-time dividend will likely continue falling in the future. Instead, they should buy the unstoppable dividends of NNN REIT (NNN +0.49%) and Vici Properties (VICI +0.76%).
Another cut could be coming down the road
NYSE: NLY
Key Data Points
Annaly Capital hasn't been the most reliable dividend stock over the years. The mortgage REIT has cut its payout several times, including by more than 25% in early 2023 (from $0.88 to $0.65 per share). It had to reduce its dividend due to the decline in its earnings available for distribution, which fell from $1.14 per share at the end of 2021 to $0.89 per share by the end of 2022.
The company's earnings have continued to slide over the past year. They were down to only $0.68 per share in the second quarter. On a positive note, that's an improvement from the first quarter's level of $0.64 per share, which was below the dividend. While the company's business model of using leverage (it had a 7.1 times leverage ratio in the first quarter) to invest in residential mortgages increases its returns, it also makes its earnings more volatile. If Annaly's earnings fall much further, the REIT will need to cut its dividend again.
In an elite group
NYSE: NNN
Key Data Points
Whereas Annaly Capital has struggled to sustain its dividend over the years, NNN REIT's payout has been simply unstoppable. The retail REIT recently raised its payout by 2.7% from the prior quarter's level. That marked its 35th straight year of dividend growth. It's now one of only three REITs that have delivered 35 or more years of consecutive dividend increases.
The REIT invests in high-quality retail properties secured by long-term, triple net (NNN) leases (hence the name). Those leases provide it with very stable rental income. Meanwhile, it has a very conservative payout ratio (less than 70% of its adjusted FFO) and a strong, investment-grade balance sheet. That gives it lots of flexibility to continue acquiring additional income-producing retail properties.
The company has a consistent and simple strategy of working directly with select retailers to acquire properties via sale-leaseback transactions. This approach helps its tenants continue expanding, which provides the REIT with a steady source of new property investment opportunities.
Leading the pack
NYSE: VICI
Key Data Points
Vici Properties increased its dividend by 6.4% last September. It has now raised its payout every year since it came public six years ago. The REIT delivered 7.9% compound annual dividend growth during that period. That leads the net lease sector, where the average has been 2.2%.
Several factors have helped drive that outperformance. Vici Properties focuses on acquiring experiential real estate like casinos, bowling entertainment centers, and sports and entertainment complexes. Because of that, it faces less competition from other investors, which enhances its returns. It works directly with operators, which enables it to make additional follow-on investments. The REIT will often provide them with development funding, which comes with the option to acquire the underlying real estate in the future.
While Vici Properties already owns many of the iconic casinos along the Las Vegas Strip, it has plenty of room to continue growing. It has the right to acquire several properties from existing partners, including casinos, golf resorts, indoor waterparks, and other resorts. Many of its partners are expanding their operations, which will provide new acquisition, development, and expansion investment opportunities. With a strong balance sheet, Vici Properties has ample capacity to fund new growth opportunities as they emerge.
These dividends are going in the opposite direction
Annaly Capital's dividend will likely continue falling in the future. Because of that, it could produce lower total returns compared to NNN REIT and Vici Properties, which should have no problem continuing to increase their payouts. Their unstoppable dividend growth makes them better buys for income-seeking investors over the long term.
