In a small sub-sector of the dividend stock universe, there can be found some of the most consistent and reliable dividend growth stocks in the entire market. Backed by strong contracts with guaranteed price increases, these stocks can be safe investments that produce an accelerating dividend stream year after year.

The approximately 200 publicly traded real estate investment trusts (REITs) own a wide range of different types of commercial real estate. The REIT sectors run from multi-family apartments to hotels, shopping centers, industrial buildings, and Class A office buildings. Each commercial property sector has its own set of risks and market cycles. Investors who crave a high level of long-term stability, along with attractive yields compared to other income investments, can fill that urge with what are called triple-net lease REITs.

Under a triple-net commercial property lease, the tenant must pay property taxes, building insurance, and maintenance/repairs in addition to rent. With this type of lease, the tenant assumes the risks of most of the variable costs of the property and the owner collects rent checks with little or no associated expenses to pay. The triple net REITs use this type of lease to generate income from free-standing properties, such as convenience stores, retail stores, and restaurants.

Commonly, leases are for 10 years or more, locking in long-term payment streams. Because of the long-term leases and the lack of regular property ownership expenses, the net lease side of commercial real estate is commonly compared to owning bonds, which are also typically longer term and pay regular interest payments.

Similar to evaluating bonds, the safety factor of a triple-net lease REIT can be analyzed by looking at the credit quality of the companies leasing the real estate properties owned by the REIT. Additional safety/risk criteria include the number of properties owned and the diversity of clients. One area where these REITs have a definite advantage over bonds is the rising rent payments built into the lease agreements. Most long-term, triple-net lease contracts have built in annual rent escalators, generating a growing cash flow stream for the REIT. There are less than 10 REITs in the triple-net subsector, and I have selected a few to cover today and go over their investment potential.