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NNN REIT (NYSE: NNN) has quietly put together a terrific record of paying dividends. The retail-focused real estate investment trust (REIT) delivered its first dividend increase to shareholders in 1990. It hasn't stopped raising its payout since then and recently notched its 35th straight year of dividend growth.

That's an impressive record, considering that we've had four recessions during the period. Economic downturns tend to be times when companies grow more conservative by either pausing dividend growth or cutting their payouts to conserve cash. It's why only two other REITs and less than 80 publicly traded companies have reached that milestone. Here's a look at what has allowed the retail REIT to continue pushing its payout -- currently yielding 5% -- higher and why that steady upward trend seems likely to continue.

Built for stability

NNN REIT has a very simple strategy. The REIT invests in single-tenant net-leased retail properties across the country. The company signs long-term, triple net leases ( NNN ) with high-quality retailers. That lease structure produces very stable rental income because it requires the tenant to cover building insurance, maintenance, and real estate taxes. These leases also typically feature annual rental rate escalation clauses that drive steady rent growth.

The REIT has a diversified portfolio of retail properties. It owns nearly 3,550 properties across 49 states. It leases them to 375 national and regional tenants in more than 35 lines of trade . For example, its top five tenant industries are automotive services (16.7% of its annual base rent), convenience stores (16.2%), limited-service restaurants (8.5%), full-service restaurants (8.4%), and family entertainment centers (6.6%).

Meanwhile, NNN REIT pays a conservative percentage of its stable income in dividends. Its dividend payout ratio was less than 70% of its adjusted funds from operations ( FFO ) in the first half of 2024. That's a very conservative level for a REIT. It gives it a nice cushion while enabling it to retain a decent amount of money to acquire additional income-producing retail properties.

The REIT also has a conservative balance sheet with a strong investment-grade credit rating. It has a low leverage ratio and primarily uses long-term, fixed-rate debt. It also has well-laddered debt maturities. These features give it lots of flexibility to fund new acquisitions.

Built to weather recessions

Despite the impact that recessions can have on the retail sector, NNN REIT's portfolio has weathered the most recent economic storms with ease. Its occupancy has never fallen below 96.4% over the last 20 years (which includes two severe recessions). For comparison, occupancy across the REIT sector fell to around 90% during the aftermath of the financial crisis (2009-2010) and roughly 87% during the pandemic year of 2020.

In other words, its tenants stayed in business and continued paying rent at a higher rate than most other REITs experienced during a recession. That's because many of its tenants see stable or even improved demand during a downturn as consumers, for example, keep their cars longer (benefiting auto service) and trade down to lower-priced options (convenience stores and limited-service restaurants).

The REIT's strong financial profile also enables it to continue growing its portfolio during a recession. It can use its retained cash and balance sheet flexibility to continue investing when it's more challenging to access outside capital. For example, it was still able to make acquisitions during the Great Recession and the pandemic-driven downturn, periods when other REITs struggled to raise capital to fund deals.

NNN REIT has put itself in an excellent position to weather the next economic storm. Thanks to the long-term nature of its leases, it has minimal upcoming lease expirations (only 4.5% through 2025). Because of that and the overall durability of its portfolio, it should continue producing steady cash flow.

Meanwhile, it has raised a lot of liquidity this year to enhance its financial flexibility. For example, it has expanded its credit facility from $1.1 billion to $1.2 billion while extending the maturity until 2028, sold 20 properties for $85.8 million, raised $34.8 million by selling shares, and issued $500 million of 10-year debt. These moves enabled it to fund $235 million of new property investments and redeem $350 million of maturing debt while maintaining one of the most conservative balance sheets in the sector.

Ready to face the next recession

NNN REIT built its business to deliver consistent results. That has enabled the REIT to increase its dividend for 35 straight years, which includes four recessions. Given its durable portfolio and conservative financial profile, it's in an excellent position to weather the next economic storm. Because of that, it's a great stock to buy for those seeking an attractive and steadily rising income stream that should have no trouble surviving future recessions.

Before you buy stock in NNN REIT, consider this: