There are hundreds of publicly traded real estate investment trusts (REITs) available to invest in, dozens of which I would consider to be great companies. But there are a few that stand out as particularly solid growth investments that investors can buy, forget about, and enjoy year after year of worry-free income as well as tons of long-term growth potential. Here are three in particular that I own, which I consider to be the "base" of my REIT portfolio.
Our data usage isn't getting any smaller
Over the past couple of decades, the volume of data flowing around the world has exploded. Just think of how much more sophisticated your mobile phone is than it was a decade ago. Or how many internet-connected devices are in your home. This trend has led to rapidly growing demand for secure, reliable places to house servers and networking equipment. That's where data center REIT Digital Realty Trust (NYSE: DLR) comes in.
Digital Realty is one of the leading data center REITs and one of the largest REITs of any kind, with 290 data centers located all over the world. Companies like IBM, Facebook, Oracle, and many more rely on Digital Realty for their data center needs. Even fellow data center operators like Equinix (NASDAQ: EQIX) and Cyxtera (NYSE: SVAC) lease space from Digital Realty.
Since the company's 2004 IPO, its returns have been remarkable. Digital Realty has grown its dividend at a 10% annualized rate for more than 15 years, and the company has produced a 2,550% total return for investors who got in at the beginning (compared with 446% for the S&P 500). There's no signs of data volume growth slowing down, so there could still be many years of strong returns ahead.
A dominant market leader with a tremendous track record
There are several excellent companies in the self-storage real estate business, but Public Storage (NYSE: PSA) is in a class by itself. The company is the world's largest owner and operator of storage facilities, and with over 2,600 facilities in the U.S. and more in Europe, Public Storage is several times larger than its closest competitor.
The economics of the self-storage business are fantastic. The properties themselves are relatively inexpensive to build and maintain, and because the "tenants" simply leave things there and rarely come back, ongoing operating costs are low. In a previous annual report, Public Storage said it could break even with just 30% of its units occupied (it's well over 90% now).
Public Storage's massive size and recognizable brand name give it advantages over competitors. Its average rental revenue per square foot is 17% higher than the industry average, and its operating margin is 600 basis points greater than that of its peer group.
The best overall dividend stock in the market?
I've called Realty Income (NYSE: O) the "best overall dividend stock in the market" many times over my analytical career, and I've put my money where my mouth is. Realty Income was the first REIT I ever bought, and I've added considerably to it over the years. It's now the largest REIT holding in my portfolio.
If you aren't familiar, Realty Income is a "net lease" REIT. In a nutshell, it owns about 6,600 freestanding (single-tenant) properties, most of which are occupied by retail tenants. Specifically, Realty Income targets retail tenants that are inherently resistant to e-commerce headwinds and that shouldn't be too vulnerable to recessions. Think of businesses that sell things people need, like drugstores and convenience stores, or businesses that provide a service, such as restaurants or fitness centers.
The business is designed to produce year after year of growing, predictable income and to create value for investors over time. And the proof is in the numbers. Realty Income has paid 610 consecutive monthly dividends and has increased the payout for the past 94 quarters in a row. What's more, since the company's 1994 NYSE listing, Realty Income has delivered a 15.2% annualized return for investors, handily beating the S&P 500.
The Millionacres bottom line
As a final thought: Although all three of these are rock-solid companies with excellent management and long track records of delivering for investors, these are still stocks. They aren't risk-free. The share prices of these REITs can (and probably will) be somewhat volatile over time. However, for long-term investors, it's tough for me to imagine a scenario where someone who buys one of these today will be disappointed in 10, 20, or 30 years.