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Want to Insulate Your Investments? Check Out These 3 REITs.

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The market is in an uncertain place today, with the S&P 500 index now officially in a bear market. In times like this, it can help to have a few good dividend-paying stocks in your portfolio. That way, you can focus on the income you generate instead of the volatility of the market.

If that sounds like a plan, you’ll want to insulate your portfolio with dividend-paying real estate investment trusts (REITs) like Realty Income (O -0.66%), W.P. Carey (WPC 0.58%), and National Retail Properties (NNN -1.22%). Here’s why.

1. A solid model

All three of these REITs hail from the net lease sector. A net lease is a specific rental agreement in which the lessee of a single property agrees to pay for most of the property’s operating costs. Although any given property is high risk, since there’s just one tenant, over a large portfolio the risk is pretty minimal. It is a vast oversimplification, but landlords like Realty Income, W.P. Carey, and National Retail Properties basically just have to collect rent.

The key here is to understand that this is generally a win/win arrangement. The seller of the property often ends up as the lessee, in a sale/leaseback deal. It basically wants to raise some cash for other purposes, like growth initiatives, while remaining in a specific location. Thus, a net lease REIT benefits from helping a lessee grow and gets a reliable tenant, often with a long-term lease deal, along the way.

All three of these net lease players have weighted average remaining lease terms that are more than 10 years long. Even if there’s a recession during this bear market, these REITs have the foundation to survive with only minimal impact.

2. Incredible dedication to investors

The real proof of that strength, meanwhile, shows up in the dividends these three net lease REITs have provided to investors. National Retail Properties has the most impressive record, with 32 annual increases under its belt. Realty Income comes next with a streak of 27 years.

And while W.P. Carey pulls up the rear with 25 consecutive annual increases, it has hiked the payout every year since its initial public offering. It’s hard to complain about that.

Each name here is either in among the Dividend Aristocrats or the equivalent, a rarefied group of companies hyperfocused on rewarding investors with regular dividend increases. There’s no reason to believe that market turbulence is going to disrupt the records these REITs have amassed, so you can rest easy as you watch the checks roll in.

3. Options

The most interesting thing here, however, is that Realty Income, W.P. Carey, and National Retail Properties are all just different enough that you can tailor them to your desires or buy all three.

Realty Income is the largest net lease name, with a market cap of roughly $41 billion. For reference, W.P. Carey is the No. 2 name, and its market cap is just $15 billion or so. Size comes with advantages in real estate, with Realty Income able to take on acquisitions that its peers couldn’t easily swallow.

Now add on an investment-grade balance sheet and the fact that investors generally afford Realty Income a premium price relative to its peers, and the REIT also tends to have a cost advantage as well. If you prefer big and safe stocks, this is the name for you.

W.P. Carey, meanwhile, has long focused on diversification. Its portfolio spans the industrial, warehouse, office, retail, and self-storage sectors. And it generates around 37% of its rents from outside the U.S. It is easily one of the most diversified REITs you can own. If you like to keep your portfolio diversified, a very good long-term approach, this reliable REIT is up your alley. 

Going in the opposite direction, National Retail Properties, with a market value of about $7 billion, is laser focused on the U.S. retail sector. But given its incredible dividend history, it clearly knows what it is doing. A total of 71% of its acquisitions since 2007 have come from current lessees. As a landlord, National Retail Properties has material insight into the performance of lessees, so the fact that it is growing along with its customers says a lot about the reliability of its business.

One, two, or three?

Realty Income’s dividend yield is 4.7%, W.P. Carey’s is 5.1%, and National Retail Properties is 5%. The average REIT, using the Vanguard Real Estate ETF as a proxy, has a yield of 2.2%, and the S&P 500 index’s yield is just 1.4%. If you are looking to add some dividend insulation to your portfolio, these three reliable REITs with strong business models should be on your wish list. Any one of them, or perhaps all of them, could help you weather the market’s current turbulence.