Real estate investment trusts (REITs) have done an excellent job creating wealth for investors over the long term as they've routinely outperformed stocks. One of the key traits of the most successful REITs is consistent dividend growth. Driving those steadily rising income streams is their ability to build and buy new properties as well as raise rental rates on existing locations.
Three REITs that currently stand out for their compelling growth prospects are American Tower (NYSE: AMT), Duke Realty (NYSE: DRE), and Equinix (NASDAQ: EQIX). That upside potential has them on a path to enrich their investors in the coming years.
The sky's the limit for this REIT
American Tower is already the largest REIT by market cap. However, the infrastructure REIT has lots of room to keep growing due to the rapid expansion of mobile data usage. The industry is currently in the early innings of moving to a new platform (5G) that should support continued infrastructure growth for at least the next decade.
American Tower is well-equipped to participate in this expansion because it owns one of the largest portfolios of telecom towers in the world. It also boasts a strong financial profile, including an investment-grade balance sheet and conservative dividend payout ratio, which gives it the flexibility to build and buy additional telecommunications infrastructure. With lots of growth opportunities ahead and the financial strength to capture them, this REIT should continue enriching its investors.
Riding the e-commerce wave
Duke Realty is currently the second-largest industrial REIT. It owns and operates about 155 million square feet of rentable logistics space in 20 major U.S. markets.
However, it still has ample growth prospects. According to commercial real estate services firm JLL (NYSE: JLL), demand for industrial real estate in the U.S. alone could grow by 1 billion square feet over the next five years. Duke is among the leaders in meeting this need. It has an extensive development pipeline, which currently amounts to 8% of its asset base, more than double its next rival as a percentage of its assets. Further, Duke has already pre-leased 65% of this space -- which is well ahead of its rivals' pace -- implying that it should start paying immediate dividends when it comes online. The company has a top-notch balance sheet to support its growth, which drives its view that it can expand its cash flow and dividend by a mid-to-high single-digit annual rate. Add that to its already above-average payout, and Duke has everything in place to produce market-beating total returns.
Data powers the digital economy. Because of that, data center REITs like Equinix have been growing at a brisk pace as they develop and acquire new facilities to support the explosive growth of information. The company is already one of the leading data center operators, as it currently has 214 locations in 26 countries that support more than 9,500 customers.
While the company already has a sizable portfolio, it still has lots of growth potential because we're still in the early innings of the shift to the cloud. As more data moves online, Equinix will be able to continue expanding its portfolio. Meanwhile, the company has ample financial firepower to support this growth thanks to its investment-grade balance sheet and conservative dividend payout ratio. Because of that, it should be able to continue generating market-beating total returns.
Long-term growth potential
E-commerce and data are two major technology-powered tailwinds with essential real estate components. Because of that, REITs focused on supporting this expansion like American Tower, Duke Realty, and Equinix have enormous growth potential. That increases the probability that they'll grow their dividends, which has been one of the keys to enriching investors over the long term.