Written by ContrarianOutlook.com

...Owning high-quality REITs (real estate investment trusts) with track records of consistently growing dividends is a proven strategy that delivers income today and rewards you with attractive gains for retirement, too...[This article] considers three well-known REIT names to show how dividend growth can drive price appreciation, and generate outsized returns. There is no magic formula. It really boils down to common sense. A dividend cut or stagnant pay-out can spell disaster, while a growing dividend rewards investors...

It is important for REITs to generate extra cash on top of the money they pay out in dividends each quarter. That is why there is an old saying: “The safest dividend is the one that was just raised.”

REITs own...properties like convenience stores and drugstores, where the leases are signed for ten, fifteen or even twenty years and some are even net-lease...REITs that can also grow earnings from contractual rent increases that help keep up with inflation.

But, the news gets even better...[REIT] leases are usually “triple-net,” [in that,]:

1. in addition to monthly rent,
2. creditworthy tenants pay all the taxes, insurance, utilities,
3. and most building maintenance.

No fuss, no muss. It is cash flow investors can count on.

...Three of the most popular...[large cap net-lease REITs are:]

• Realty Income Corp. (O) – $16.8 billion market cap, 4.1% dividend yield.
• VEREIT, Inc. (VER) – $8.65 billion market cap, 6.2% dividend yield.
• National Retail Properties Inc. (NNN) – $6.75 billion market cap, 4.0% yield.

Vereit pays the highest yield...[but] when we consider price performance, we see that the big dividend isn’t helping:

The chart tells an entirely different story when it comes to safety of principal and price appreciation. We like dividends – but we also want to make sure our capital is secure.

Here’s where VEREIT fails:

Vereit shareholders have had to deal with the aftermath of poor decisions made by the former ARCP management team.

• Over the last two years, CEO Glen Rufrano and his team have improved corporate governance and strengthened the balance sheet by selling non-core assets.
• However, during the last two-years there has been zero dividend growth, after a painful cut in 2014. One of the reasons for a stagnant dividend is that 86% of all available cash is already going toward the dividend.

Contrast this “dead dividend” with National Retail, one of the few true “Dividend Aristocrats.”

NNN has raised its dividend for 27 consecutive years. There are only 94 out of 10,000 companies that can make that claim. This dividend growth juggernaut pays out just 78% of free cash as dividends.

...How about Realty Income?

This REIT is also called The Monthly Dividend Company for a reason. Last week, Realty Income announced its 562nd consecutive monthly dividend since the IPO in 1994.

Realty Income continued to pay and grow its distribution every year including the Great Recession. This has resulted in considerable outperformance for “O” shares compared with almost any other asset class.

Balance Sheet Strength Comparisons

• VEREIT has made great strides in its balance sheet and portfolio transformation. However, this has been accomplished by shrinking the pool of assets, rather than growing them. Moody’s recently raised its rating to Baa3 for VEREIT, which will help it to borrow at lower rates going forward. A BBB- balance sheet is a huge step in the right direction for patient VER shareholders.
• Meanwhile, Realty Income and NNN both have fortress balance sheets with ratings of BBB+/Baa1 from all the major ratings agencies. You can have confidence that the dividend check will be there like clockwork. Shareholders get a raise at least once a year, which also helps to grow your nest egg....