Despite a roiled market, there are some solid choices right now for investors who want to pick and choose stocks based on their safety now and going forward.
Real estate investment trusts are a good place to start, since they’re required to pay out most of their net income as dividends, which can buoy their stock price while providing an income stream to their investors.
The pandemic has tested the resilience of REITs in every sector, but some stand out both for what they do (the products and services they provide) and what they’ve done (long standing records of solid returns).
We chose three to highlight here. Each is among the biggest in their niches and appear poised to keep up the good work and returns.
The first, American Tower (NYSE: AMT), has a market cap of about $107 billion and reported 2019 revenue of about $7.58 billion. Our other two REITs in the list below, both leaders in their segments, are Public Storage (NYSE: PSA) (2019 revenue of about $2.9 billion, market cap of about $41 billion) and Realty Income (NYSE: O) ($1.5 billion in 2019 revenue, market cap about $22 billion).
Here’s a bit more about each of these.
American Tower Corporation
American Tower stands above the competition in the REIT world for a number of reasons. One: It’s big, really big, in fact perhaps the biggest REIT in the world. Two: It’s a key player in an industry that stands to grow, really grow.
The company currently has about 181,000 towers in wireless markets across the world that are in varying stages of development, as are the networks those towers are carrying. American Tower grew with the wireless industry in America before taking a stake in Mexico, Europe, Africa, South America, and Asia.
And now the 5G revolution can be expected to not only deepen global dependence on all things wireless, but also prompt the construction of new towers and repurposing of existing infrastructure.
The Boston-based company has been steadily raising its dividend -- including from $0.35 per share in 4Q11 to $1.10 per share in 2Q20 -- which gives it a current yield of 1.80%. That’s less than some other REIT segments but on par with the six REITs in the Nareit infrastructure cluster.
As of Sept. 30, its average yield was 2.03% and the year-to-date total return was 14.35%. The average yield for all 159 constituents of the FTSE Nareit All Equity REITs was 3.84% and the average return was -12.27% year to date.
American Tower’s return so far this year is 9.24% based on an Oct. 8 mid-afternoon stock price of $241.77. That’s well off its spring low of $174.32 and not too far behind its 52-week high of $272.20.
The company’s solid balance sheet, long experience, and advancing reach in one of the most obvious growth sectors in the world make it one of the safest buys in the REIT realm and U.S. stock markets as a whole -- and an issue to consider a buy and hold for years to come.
Realty Income Corporation
While the pandemic prompted some shopping center and mall REITs to halt and/or slash dividends (Kimco Realty), buy their tenants (Simon Property Group), or even merge themselves out of existence (Taubman Centers), venerable Realty Income (NYSE: O) has soldiered on, continuing a half-century of monthly dividend payouts.
San Diego-based Realty Income currently has long-term net leases with 630 different tenants in 51 different retail and other industries occupying 6,500 properties in 49 states, Puerto Rico, and the United Kingdom.
And while the retail sector as a whole is reporting improving rental payments -- the core cash flow that enables payouts -- Realty Income stands out as a safe selection for those who believe retail will continue to be on the rise.
While its closing price of $62.71 on Oct. 7 helps equate to a one-year total return of -15.74, Realty Income has, as of the second quarter of this year, paid monthly dividends to shareholders for more than half a century. That’s 602 consecutive months.
The company also boasts a compound average annual return of 15.3% and compound average annual dividend growth of 4.5% since it joined the New York Stock Exchange in 1994.
Realty Income’s monthly dividend payable in October was $0.234 per share, good for a current yield of about 4.44%, compared with 6.47% for the 40 retail REITs tracked by Nareit. But that’s a beaten-down sector with an average year-to-date total return of -39.39% right now.
After dipping to as low as $38 a share this year, Realty Income has marched back up to the mid-60s and has a 52-week high of $84.92. If it gets back up there again, the yield, of course, won’t be as high but the reliable income will still be there if you want to hang on or cash in and move on. I own a few shares, and I’m hanging on.
Public Storage (NYSE: PSA) is the big kahuna in the small universe of publicly traded self-storage REITs and its record of 17.4% annualized return for the past 30 years is 70% higher than the same metric for the S&P 500.
Now the world’s largest owner, operator, and developer of self-storage facilities, Glendale, Calif.-based Public Storage claims more than 1 million customers at its nearly 2,500 locations across the country.
That position in a notably recession-proof niche, one that has withstood the economic ravages of the pandemic reasonably well, has drawn the attention of investors, of course. A 30-year total return of 12,340% will do that.
After plunging about 30% to $160 a share during those pandemic-induced two weeks of market collapse in March, Public Storage is back up to around $230 a share. That’s not far off its 52-week high of $249.03, so this is a dividend play primarily, as REITs tend to be.
Public Storage has been paying dividends at the rate of $2.00 a share since the fourth quarter of 2016, giving it a current yield of 3.48%, right at the average of 3.66% for the seven self-storage REITs tracked by Nareit. The REIT also is reporting a last 12 months (LTM) dividend payout ratio of a healthy 75.05%, high enough but not so high as to raise concerns about having the cash it needs to compete in a really competitive space.
Public Storage does face a lot of competition from publicly traded and private operators, forcing it to spend more on marketing and hindering its ability to raise rents, but the company expects oversupply to inhibit the pace of new growth from rivals.
There also could be opportunity to buy some of those rivals at a favorable price if the economy continues to struggle. Public Storage only has a 6.8% share of the total self-storage market, one in which public companies own only 18% of all U.S. self-storage facilities and the 100 largest own just 9%.
In the meantime, a long record of successful management of a growing enterprise that has handsomely rewarded investors makes Public Storage a safe REIT for your investment dollars.