What makes buying a smart stock? It depends a lot on your point of view. In my case, I am an income-oriented investor focused on a reliable and growing stream of dividend payouts. This led me to devote much of my attention and money to real estate investment trusts (REITs).
There are currently about 225 publicly traded REITs, and they are all required to pay out at least 90% of their taxable income as a dividend to investors. But beyond that, the differences can be huge.
Reduce it to three REITs
All REITs have this payment obligation. They can also raise rents to help stave off inflation, but this ability varies widely across industries and geographic markets in which they operate. Then there are their performance records, which indicate that their price beats may be an overreaction and, therefore, a good buying opportunity.
Finally, I look for stocks that are in the S&P500. Stocks in this group are not only bought on their individual merits. It is also a widely used benchmark, so institutional and index buyers also buy these stocks just because they are on the list. There are 25 REITs in the S&P 500, so plenty to choose from.
After narrowing that down, I picked two REITs I already own — Alexandria Real Estate Stocks (ARE 1.48%) and International Crown Castle (ICC -0.87%) — and a third that I plan to add, Camden Estate Trust (PTC 0.33%).
Let’s first look at two charts that give an overview of these three stocks, and then I’ll include some details on each. The first chart shows the 10-year total return, and the second is the year-to-date total return. Total return combines stock price and dividends, and for a benchmark I included the Vanguard Real Estate ETFan exchange-traded fund that typically includes about 160 REITs.
First, the 10 year old look. A maxim I believe in is to buy big companies and keep them for the long term. These three show why.
The chart below shows how they have fared so far this year, showing where these stocks need to go to get back to where they were before the current downturn.
Below is an overview of each REIT, including some of their most notable metrics.
1. Alexandria Real Estate Stocks
Alexandria Real Estate Equities has dipped in the market so far this year, with many of its major tenants, such as biopharmaceutical companies. But there’s still a lot to like about this pioneer of the life sciences collaborative space.
Recent projects added to its growing portfolio include by Moderna new headquarters in Cambridge, Massachusetts and the expansion of its Alexandria LaunchLabs project with Columbia University in New York. The latter provides space and start-up assistance to around 25 new start-ups per year.
Alexandria has financially managed this combination of traditional office real estate operations and cutting-edge life sciences investments quite well, growing its funds from operations (FFO) by 382% over the past 10 years, while growing its dividend for 13 consecutive years. A price to FFO per share ratio of 15.7 helps make this company a bargain in today’s market.
2. Camden Estate Trust
Camden Property Trust is a relative newcomer to the S&P 500 but has a collection of 170 apartments with around 58,000 units. This makes it one of the largest publicly listed multi-family operators in the country.
Camden’s focus on Sunbelt’s high-demand markets allows it to take greater advantage of the inflation-fighting ability to quickly raise rents inherent in short-term leases in this type of commercial property. The company responded by recently increasing its 2022 forecast for FFO by $0.27 per share to $6.51. This is a 4.3% increase that builds on a 10-year record of around 153% growth in this crucial measure of REIT performance.
A price/FFO ratio of around 17.5 makes this stock look relatively cheap, and a payout ratio of around 53% makes the current dividend yield of around 2.8% look very sustainable. Analysts who follow this stock have also given it a consensus target price of around $171 per share, which would be a nice gain from the around $135 it is currently trading at. .
3. Crown Castle International
Crown Castle International is the largest of these three REITs, with a market capitalization of approximately $76 billion and a rapidly growing portfolio of mobile communications infrastructure anchored by approximately 40,000 cell towers and 80,000 miles of fiber cable. . Despite the Crown Castle name, it’s a nationwide company that’s extending its networks far beyond those tall towers, focusing vigorously on the small-cell node sites that are critical to pushing 5G networks through. in communities and in buildings.
Major mobile operators and public and private entities depend on this infrastructure, and Crown Castle has generously rewarded investors as it has grown, posting 320% dividend growth in the last 10 years alone.
CCI stock is currently yielding around 3.4% at a beaten share price of around $175 that consensus analyst estimates see rising to around $203, up around 16%. That, combined with a growing dividend, would make a purchase here very smart.
Smart is in the eye of the beholder
Past performance is no guarantee of future earnings, but Alexandria Real Estate Equities, Crown Castle International and Camden Property Trust have the portfolios in place to maintain the flow of passive income while their discounted prices now could add to the deal later. And here! This result would make you feel pretty smart.