Dividend Stock Comparison: Understanding the Strategic Differences Between Two Major REITs

Why REITs Matter for Income Investors

Real estate investment trusts (REITs) have become increasingly popular among those seeking stable income streams. The underlying structure of a REIT mandates distribution of at least 90% of taxable income to shareholders, creating a built-in income advantage for investors.

The mechanics are straightforward: REITs acquire properties, lease them to tenants, and collect rental payments. While this model works across various property categories—industrial, office, residential—one segment has garnered particular attention and debate: retail properties.

The Retail REIT Recovery Story

Retail-focused REITs faced substantial headwinds in recent years. The COVID-19 pandemic sparked concerns about e-commerce cannibalizing physical retail, while the 2022-2023 interest rate environment pushed borrowing costs higher, directly impacting acquisition economics for real estate operators.

However, the narrative has shifted. Through the first nine months of 2025, retail-focused REITs delivered an average 6.9% return, according to the National Association of Real Estate Investment Trusts (Nareit). Many have navigated these challenges successfully and now operate from positions of relative strength.

Two Contrasting Approaches to Retail Real Estate

Realty Income (NYSE: O) and NNN REIT (NYSE: NNN) represent different philosophies within the retail REIT space. Both have established themselves as leaders, yet their operational scales and strategic focuses diverge meaningfully.

Realty Income: Scale and Diversification

Realty Income operates an expansive portfolio exceeding 15,540 properties. Approximately 80% of rental income flows from retail tenants, with notable concentrations in grocery (11%) and convenience retail (10%). The company maintains substantial relationships with major operators: Dollar General, Walgreens, Home Depot, and Walmart rank among top tenants.

The diversification extends beyond pure retail—roughly 15% derives from industrial properties, with gaming and other segments filling the remainder.

Financial metrics underscore operational stability. The occupancy rate reached 98.7% in recent periods, while lease renewals occurred at 3.5% rental rate increases. Adjusted funds from operations (AFFO), the key cash metric for dividend coverage, climbed 2.9% year-over-year to $1.09 per diluted share.

The dividend narrative is particularly compelling. The company has increased payouts quarterly for over three decades (trading since 1994), with monthly distributions typically raised multiple times annually. Recent activity shows the monthly payout moved from $0.269 to $0.2695 per share. With management guiding to $4.25-$4.27 AFFO per share for the year, current annualized distributions of $3.23 per share enjoy comfortable coverage.

The current dividend yield stands at 5.7%.

One consideration for growth-oriented investors: the sheer portfolio size creates a mathematical challenge. Adding meaningfully to earnings when you already own 15,000-plus properties requires increasingly substantial capital deployments. This translates to moderate growth potential going forward.

NNN REIT: Focused Expansion

NNN REIT operates with a different scale—approximately 3,700 properties concentrated across the retail sector. Convenience stores, automotive service centers, restaurants, and family entertainment venues dominate the portfolio mix.

Operational execution appears solid. Third-quarter occupancy measured 97.5%, slightly below Realty Income but still robust. The per-share AFFO trajectory improved from $0.84 to $0.86 quarterly, demonstrating positive momentum.

Dividend reliability runs deep. The company extended its consecutive annual increase streak to 36 years, with the most recent adjustment (August) raising the quarterly payout by 3.4% to $0.60 per share. Management guidance pegs full-year AFFO at $3.41-$3.45 per share, easily supporting the enhanced distribution rate.

The dividend yield currently sits at 5.9%.

Size, paradoxically, presents an advantage for NNN REIT. Individual property acquisitions and capital deployments still meaningfully impact growth trajectory—a dynamic unavailable to much larger competitors. This positions the company for potentially more dynamic expansion opportunities.

The Investment Decision Framework

Choosing between these two REITs involves weighing competing advantages. Both have demonstrated resilience navigating a challenging retail environment by focusing capital on tenant businesses showing relative economic immunity. Dividend track records spanning three decades underscore management quality. Yield differential remains minimal.

The distinction ultimately rests on philosophical preference: do you favor the established, diversified breadth that Realty Income provides, or the concentrated upside potential (albeit with less diversification) inherent in NNN REIT’s smaller, U.S.-focused retail platform?

From a pure growth lens, the smaller REIT’s capacity to expand meaningfully on each acquisition suggests potentially superior returns, despite accepting higher concentration risk in the process.