This Is My Favorite Dividend Stock Right Now

As an income investor, it's no surprise that my portfolio is made up of mostly dividend stocks. To me, the growing power of dividend stocks and their ability to create long-term passive income streams simply can't be beaten.

While there are loads of top-notch dividend stocks for investors to choose from, here's why National Retail Properties (NNN 0.44%) is my favorite right now.

Not your average net-lease REIT

The net-lease real estate investment trust (REIT) owns and leases single-tenant retail properties in a wide range of industries like restaurants, convenience stores, automotive services, and entertainment venues, among others. Today, its portfolio is made up of just over 3,300 properties leased to around 370 tenants in 48 states.

Net-lease REITs are known for being solid dividend payers. Companies like Realty Income (O 0.52%) and Federal Realty Trust both boast 25 years or more of dividend increases. This is largely due to the reliability of the net-lease industry. But what makes National Retail Properties stand out against is its acquisition model.

National Retail Properties doesn't lease properties to investment-grade tenants, at least not directly. Instead, it buys retail property in high-traffic areas in strong real estate markets that are leased to smaller, regional operators. This gives the company more favorable pricing when buying and it faces less competition.

The long-term nature of net leases and National Retail's careful selection of real estate opens the door to investment-grade tenants through acquisitions. The REIT's top three tenants are 7-11, Mister Car Wash, and Camping World, which account for roughly 13.5% of its annual income. Yet the REIT hasn't directly done deals with most of these companies.

While it does face exposure to recessionary risks, its diversified portfolio across the country and in a wide range of industries helps reduce its vulnerability. As of Q2 2022, National Retail's portfolio was 99.1% occupied and it collected 99.6% of all rent due in the first quarter of 2022.

Conservative balance sheet

National Retail has a healthy balance sheet, particularly compared to its closest net-lease peers, Realty Income and STORE Capital (STOR). Its dividend payout ratio as it relates to adjusted funds from operations (AFFO), an important metric for REIT profitability, is 67%. This indicates the company has sufficient liquidity to maintain and even raise its dividend in the near future.

Its debt-to-EBITDA (earnings before interest, taxes, depreciation, and amortization) ratio is one of the lowest in the net-lease REIT industry and by far the best of its closest peers at 5.5. It has BBB/Baa1 credit ratings and $30 million in liquidity, which covers its near-term debt maturities coming due in 2023. Plus, its pricing of 15.5 times its AFFO makes it the best value buy among its net-lease peers.

Data sources: Author's calculations from company's earnings and YCharts.

33 years of dividend increases

Paying dividends is easy, but maintaining them and raising them without compromising shareholder value is an entirely different story. So when a company is able to consistently increase its payouts over decades, it really says something about the quality of the business.

National Retail Properties has maintained dividend increases for 33 consecutive years, making it the equivalent of a Dividend Aristocrat. Over the past 20 years, it raised its dividend by 72%, and today it has a dividend yield of 5%, or more than double that of the S&P 500.

It's also managed to outperform the S&P 500 over the past 25 years, providing a nearly 11% annualized total return. Given its outstanding dividend track record, its ability to expand its portfolio, and its stable performance lately, National Retail Properties is a clear long-term winner for dividend investors and a great value buy today.