National Retail Properties (NNN -1.08%) is a well performing commercial real estate investment trust (REIT) with a focus on U.S. retail properties across the United States.

With a market capitalization of only $4.7 billion, National Retail Properties is not exactly a small REIT, but nonetheless only about half the size of industry champions like Realty Income (O -1.12%) or American Realty Capital Properties (VER), which have market caps in the $10-billion-plus region.

I think the market's undervaluing this stock. Here's why.

Source: National Retail Properties Annual Report 2013

1. Strong portfolio growth
A resilient real estate investment trust can be identified by looking at how its portfolio has grown in times of economic distress. In periods of market turbulence, or economic recessions, reliable dividend payers provide stability and are something income investors would want to own for their portfolios.

National Retail Properties certainly classifies as a company with a solid business growth record: From 2008 to 2013, National Retail Properties' portfolio count has risen from 1,037 to 1,860. That's an increase of 79% throughout a period that wasn't exactly the best for the real estate asset class.

And portfolio growth is not slowing down: At the end of the second quarter, National Retail Properties reported 1,927 properties, up 4% over year-end 2013, with a total gross leasable area of 20.7 million square feet.

Source: National Retail Properties Annual Report 2013

2. High degree of tenant diversification + outstanding occupancy
But the increase in National Retail Properties' portfolio size did not come at the expense of higher cash flow risks for shareholders.

The risk of a REIT can quickly be judged by looking at the degree of tenant diversification. The more tenants a REIT has, the more its revenue base is diversified, the lower are the risks for shareholders.

Though National Retail Properties has a high industry concentration, it achieves more than 19% of revenue from convenience stores, the REIT actually is highly diversified in terms of tenants.

For instance, Susser Holdings, National Retail Properties' largest tenant, accounts for less than 5% of annualized base rents, and its top 10 tenants for 38.4%.

Source: National Retail Properties Second Quarter Earnings Release

Not only does National Retail Properties benefit from a high degree of tenant diversification, but tenants also seem to be quite happy with their properties: The occupancy rate at the end of the second quarter of 2014 stood at an impressive 98.5% giving the REIT only little room for further improvement. 

3. Dividends
Of course, REIT investments are predominantly held in income portfolios where they produce a recurring cash flow stream that is either reinvested or used to meet living expenses.

National Retail Properties currently pays investors $0.42 per share quarterly in dividends ($1.62 over the trailing-12 months, according to S&P Capital IQ), which is covered by its recurring second quarter funds from operations (FFO) of $0.50 per share. Since the REIT also achieved $1.01 per share in recurring FFO for the first half of fiscal 2014, investors can actually buy National Retail Properties with a solid margin of safety. 

Compared against other commercial REITs with a large retail footprint, National Retail Properties offers a competitive dividend yield that is approaching 5%.

I think that passing over National Retail Properties might be a big mistake. The REIT clearly has a solid portfolio growth record, a diversified tenant base, which limits cash flow risks, an outstanding occupancy rate, and a competitive dividend yield. What more could income investors ask for?