National Retail's Much Improved Rent Collection Rates Put Dividend on Solid Ground

In April last year, in the midst of a burgeoning pandemic, National Retail Properties was able to collect only 52% of rent payments due. With cash flow failing to cover the dividend, the retail REIT cautioned investors that "by no means is the dividend untouchable."

Over the year since, conditions have improved so much that management recently boasted, "looking ahead to 2021 and beyond, you should expect... us to be able to continue our long history of consecutive annual dividend increases."

National Retail even issued a modest dividend increase last fall, extending its dividend growth streak to 31 consecutive years despite the challenging backdrop.

Since the pandemic low, every quarter has experienced improved rent collection. Most impressive was last month's 97% rent collection rate, a staggering year-over-year improvement as many tenants have seen business rebound sharply with Covid-related restrictions easing. 

 

Even 2020 as a whole fared better than most had feared, with annual rent collection coming in just shy of 90%.  Through it all, National Retail's occupancy rate has remained above the industry average and is currently at 98%.

These improved conditions have led analysts to forecast record cash flow per share for National Retail in the year ahead. If realized, the firm's payout ratio would fall to 72%, in line with historical norms.

National Retail has also preserved its BBB+ investment-grade credit rating, held its leverage ratio steady throughout the pandemic, and pushed out its earliest debt maturity until 2024. This provides the REIT with the ongoing financial flexibility to weather future downturns and continue acquiring properties.

Overall, we feel comfortable returning National Retail's Dividend Safety Score to a Safe rating and believe it's likely the company will continue to extend to its 31-year dividend growth streak.