Investing in income-generating assets requires a keen eye for discounted opportunities. When certain market sectors face challenges and investors shy away, astute long-term dividend investors see the potential for income growth while waiting for a rebound.

One such sector that has experienced significant headwinds recently is real estate investment trusts (REITs), largely due to the Federal Reserve's aggressive interest rate hikes. While the Fed's latest meeting suggests a temporary pause, two more rate hikes are expected in 2023. This environment poses challenges for REITs, particularly in terms of refinancing. However, the prospect of a forthcoming economic downturn presents an opportune time for long-term investors to consider investing in beaten-down REITs.

NNN REIT (NNN) is a compelling option in the REIT space. Although it may not enjoy the same popularity as Realty Income (O), NNN offers attractive prospects for investors. With an impressive track record of 33 years of dividend increases, a robust adjusted funds from operations (AFFO) payout ratio of 67%, and a current occupancy rate of 99.4%, NNN's dividend is not only secure but also possesses growth potential. Even during the COVID-19 pandemic, NNN maintained an occupancy level of 98.5%, outperforming its REIT peers by a significant margin.

NNN distinguishes itself by targeting selective non-investment grade tenants within the retail-oriented platform. This strategy grants them better pricing power and potential rent growth, albeit with some vulnerability to changing tenant credit ratings. Nevertheless, NNN mitigates risks through the extensive diversification of its portfolio, consisting of 3,411 properties across 48 states and more than 400 retail tenants.

From a financial standpoint, NNN has locked in debt costs with a weighted average effective interest rate of 3.7% and a weighted average maturity of 13.7 years. This positions them favorably to navigate higher interest rates in the coming years, especially considering the potential for rate cuts when their debt begins to mature. Furthermore, NNN's shares are currently trading below their longer-term fair value range based on the price-to-AFFO ratio, signaling an attractive investment opportunity.

Shifting our focus to business development companies (BDCs), Gladstone Investment Corp (GAIN) emerges as an enticing prospect. GAIN primarily adopts a buyout investment strategy, acting as the primary issuer of equity and secured debt for its investments. While GAIN assumes a relatively more aggressive stance compared to other BDCs, it boasts a concentrated portfolio of 25 companies with positive cash flows, avoiding early-stage ventures.

What sets GAIN apart is its emphasis on floating-rate loans, which contributes to meaningful growth in net investment income. With 100% of their debt portfolio based on floating rates and a substantial allocation to fixed-rate notes, GAIN capitalizes on rising interest rates. Their ability to deliver consistent dividend growth and supplemental distributions, even during turbulent times, demonstrates the success of their aggressive approach.

GAIN has exhibited superior performance compared to both its BDC peers and the broader S&P 500 index, despite occasional volatility inherent in leveraged BDC investments. While multiples used to value buyouts have declined recently, the market remains competitive. GAIN continues to selectively seek new acquisitions, exercising patience in their diligence and review process.

Investing in NNN and GAIN presents an opportunity to generate substantial income in your portfolio. NNN, with its reliable dividend history, resilient tenants, and geographical diversification, offers long-term income stability. On the other hand, GAIN's aggressive strategy, focused on buyout investments and floating-rate loans, has delivered superior returns and consistent dividend growth.