It’s Raining Dividends: Unlocking Passive Income Opportunities

In the dynamic world of financial markets, each day brings a new chapter filled with twists and turns. From the ebb and flow of earnings reports to the suspense of inflation data and the Federal Reserve’s monetary policy, every market move tells a story. One strategy that provides stability and immunity from market volatility is dividend investing. In this article, we will explore two excellent dividend growth picks that have the potential to propel your passive income: NNN and DMLP.

NNN: A Reliable Dividend Steward

Overview

NNN REIT, Inc. (NNN) is a real estate investment trust that owns 3,511 commercial properties in 49 states, encompassing approximately 35.8 million square feet of gross leasable area. With a remarkable track record, NNN has increased its annual dividends for 34 consecutive years, making it one of only three publicly-traded REITs to achieve such a feat.

Strong Financial Performance

In its third-quarter earnings report, NNN showcased its reputation as a well-managed Net Lease REIT. The company maintained high occupancy levels of 99.2% and raised its FY 2023 core Funds From Operations (FFO) guidance to $3.19 – $3.23 per share, indicating robust financial performance. The adjusted Funds From Operations (AFFO) estimate for FY 2023 is projected to be $3.22 to $3.26 per share, showcasing a sector-leading 68% payout ratio.

Robust Balance Sheet and Liquidity

NNN boasts a strong balance sheet and ample liquidity to handle near-term expenses and acquisitions. With a net debt-to-EBITDA ratio of 5.4x, interest coverage and fixed charge coverage of 4.6x, and no significant debt maturities until mid-2024, NNN is well-positioned to ride the current rate cycle without facing significant headwinds. The company ended the third quarter with $98.3 million of cash and no amount drawn on its $1.1 billion credit facility.

Strategic Acquisitions

NNN’s focus on strategic acquisitions has contributed to its growth and stability. During the first nine months of FY 2023, the company invested approximately $550 million to acquire 125 properties, demonstrating its commitment to expanding its high-quality property portfolio. Additionally, NNN raised $90 million from selling 26 assets during the same period. These acquisitions and dispositions have strengthened NNN’s position in the market and enhanced its ability to generate consistent cash flow.

Promising Future Outlook

With a history of maintaining an average annual Core FFO per share growth rate of 4.9% since 2016, NNN continues to execute its business strategy effectively. The REIT’s occupancy rate has never dipped below 96.4% since 2003, further solidifying its reputation as a reliable dividend steward. With a weighted average remaining lease term of 10.2 years and minimal lease expirations in 2024, NNN is poised to continue rewarding shareholders with growing dividends for the foreseeable future.

DMLP: Unlocking Royalty Income Potential

Embracing Acquisitions

Dorchester Minerals, L.P. (DMLP), a Master Limited Partnership (MLP), operates in the energy industry and invests in royalty interests. DMLP has been aggressive with acquisitions, securing its status as a perpetual source of royalty income for unit holders. Notably, during the third quarter, DMLP acquired 2,184 net royalty acres across 19 counties in Louisiana, New Mexico, and Texas, ensuring its reserve levels remain steady.

Variable Distributions

Investors must note that DMLP’s distributions are variable and highly correlated with the volume and price of crude oil and natural gas. As such, it is not meaningful to compare distributions between quarters. However, DMLP reported a healthy average WTI Crude price of $68.66 per barrel and an average Natural Gas price of $1.92 per mcf for the third quarter. Despite lower prices compared to the previous year, commodity prices remain relatively elevated.

Strong Sales Performance

DMLP reported a significant year-over-year increase in royalty gas and oil sales, as well as NPI (Net Profit Interest) gas and oil sales. This growth is attributed to higher production from its reserves, driven by a combination of increased domestic energy production and accretive reserve acquisitions. With $43.4 million in cash and cash equivalents on its balance sheet, DMLP is well-positioned to continue capitalizing on opportunities in the energy sector.

Immunity to Interest Rate Policy

DMLP’s unique structure as an MLP grants it immunity to the impact of interest rates. The partnership is prohibited from incurring indebtedness over $50,000 in the aggregate at any given time. Consequently, DMLP can focus on maximizing returns from royalty property sales and NPI, without the burden of interest rate fluctuations.

Favorable Energy Market Outlook

The global energy industry is undergoing a transformation, with leading producers Saudi Arabia and Russia committing to production cuts and drawing down global inventories. These producers benefit from higher prices and are unlikely to create a surplus. Furthermore, the broader Climate Change policy has made energy companies more cautious about ramping up production, ensuring tighter supply control. As a result, energy prices are projected to remain elevated, making DMLP a favorable investment choice.

Conclusion

Dividend investing offers stability and a reliable source of passive income in the ever-fluctuating financial markets. NNN and DMLP stand out as excellent dividend growth picks, meeting the growing income needs of investors. NNN’s solid financial performance, robust balance sheet, and strategic acquisitions position it as a reliable dividend steward. Meanwhile, DMLP’s focus on royalty interests and favorable energy market conditions make it an attractive choice for investors seeking long-term income potential.

Diversifying your portfolio with these dividend growth picks can provide a steady stream of income and position you for financial success. Remember, investing involves risks, and it is essential to conduct thorough research and seek professional advice before making any investment decisions. Start your journey toward a secure financial future by exploring the opportunities presented by NNN and DMLP.

Disclaimer: This article is for informational purposes only and should not be considered as financial advice. Always do your due diligence and consult with a qualified financial advisor before making investment decisions.

It’s Raining Dividends