This is as good a month as any to fall in love with a few good real estate investment trusts (REITs). But which is best? Well, it depends on your criteria for "best" here. If you're looking for meteoric price growth, you might consider other kinds of stocks in the first place, of course, since REITs tend to be of the slow but steady variety.
But for three tortoises that might best the hare, you could do worse than showing some love this month to STORE Capital (NYSE: STOR), Innovative Industrial Properties (NYSE: IIPR), and Crown Castle International (NYSE: CCI).
An investment in STORE Capital puts you in elite company. This Arizona-based REIT's three largest shareholders are Vanguard, Berkshire Hathaway (NYSE: BRK.B), and BlackRock Fund Advisors (NYSE: BLK). In fact, Warren Buffet thinks enough of this operation to make it the only REIT on this list of Berkshire Hathaway holdings published in November.
Like many of its REIT competitors, STORE Capital is a net lease operation, meaning the tenants pick up the cost of taxes, maintenance, and similar expenses. They also pay rent -- lots of rent. Fully 91% of its contractual base rent and interest in January, in fact. That's what makes STORE Capital's lineup of tenants so attractive. This is a diverse portfolio of 511 tenants occupying 2,587 single-tenant spots as of the third quarter, full of brand-name operators, many in essential businesses who have done well enough themselves to keep the rent coming in even during the pandemic.
And it's not just retailers. While they accounted for 19% of third-quarter rent, 18% came from manufacturing properties, a particularly steady performer of late.
The company also announced in January that it had invested more than $800 million in profit center real estate during 2020, above its guidance range of $625 million to $750 million.
STORE Capital has paid a dividend every quarter since its first payout in the fourth quarter of 2014, including $0.35 a share from third quarter 2019 to the second quarter of 2020 and then bumping it up a penny to $0.36 for the past two quarters. On Feb. 11, at $33 a share, it was yielding 4.36%, after the stock price had dipped as low as $13 in the spring. The 52-week high is $39.65, and STORE Capital intends to continue growing.
Innovative Industrial Properties
Innovative Industrial Properties (IIPR) has a two-pronged business strategy that should pay dividends in growth and, well, dividends for years to come. California-based IIPR is the first publicly held company to provide real estate capital to the medical marijuana industry. It buys and develops facilities and then leases it back to them, and it provides financing to many of them as well.
That latter part is critical, since banks, credit unions, and other traditional lenders shy away from financing legal marijuana operations because it's only legal in individual states. Marijuana is still illegal on the federal level.
Maybe that will change under a Biden administration, but either way, IIPR is in a good position to take advantage of a growing industry. And IIPR is, indeed, growing. Founded only in 2016, IIPR now owns and/or manages 63 properties in 16 of the 35 states where medical marijuana is legal, and it announced two expanded partnerships and an acquisition in the first five weeks of 2021.
As of year end, it had leased 99.3% of that portfolio with a weighted average lease term of 16 years. And it's paid dividends every quarter since the second quarter of 2017. The market likes this stock: Its payout of $1.24 a quarter for 2020 gives it a yield of only 2.36% at a Feb. 11 price of $205.03 per share. But the stock is on a roll: $10,000 invested in IIPR from its IPO inception would now be worth about $108,000. That's in just five years.
Crown Castle International
There are a handful of REITs that do mobile towers, and American Tower (NYSE: AMT) is the 800-pound gorilla in the room. But Crown Castle has a seat at the table, too, especially with its push into the world of 5G.
Crown Castle has more than 40,000 cell towers, about 70,000 small cell nodes, about 80,000 route miles of fiber, serves every major market in the U.S. and it's about to get bigger. On Jan. 27, Crown Castle and Verizon (NYSE: VZ) announced the wireless giant would lease 15,000 new small cells for Verizon's 5G Ultra Wideband and 5G Nationwide deployment. It will take four years to get those sites up and running. Once installed, they'll carry initial leases of 10 years.
Those kinds of deals and long-term existing relationships give company CEO Jay Brown the confidence to say in the company's just-released full-year 2020 results: "We believe our unique portfolio of assets positions us to benefit from what we expect will be a decade-long investment cycle as our customers deploy 5G, extending the opportunity we see to create long-term value for our shareholders while delivering dividend per share growth of 7% to 8% per year."
The Texas-based operation has been around for a quarter-century and has been a REIT since January 2014. Since then, it's grown its dividend from an initial $0.35 a share to $1.33 for the fourth quarter 2020, a nice increase from the $1.20 a share it had paid out the previous four quarters.
That annual dividend of $5.32 was good for a yield of 3.26% at a Feb. 11 price of $161.66 a share. The stock has traded as high as $180 a share, and it's reasonable to assume share price could follow the company's expected dividend growth on a nice upward slope.
The Millionacres bottom line
While there are no guarantees in investing (annuities aside), these three REITs have sound fundamentals in markets that are either growing -- in the case of IIPR and Crown Castle -- or holding their own, in the case of STORE Capital. They're also growing organically by taking on new properties and expanding existing relationships.
Altogether, while only time will tell who's the best -- and there are many other worthy contenders -- these three REITs have plenty going forward for them to justify being on such a list.