Real estate is a great way to build wealth over the long run, and so are sound investments in publicly traded real estate stocks. Combining the two can be even better, providing you with liquidity, a huge array of choices, and the ability to get involved in real estate without putting down a huge pile of cash as you begin your real estate investing journey.
Real estate investment trusts (REITs) are companies that own pools of income-producing assets used to fulfill the IRS requirement that at least 90% of taxable income from REITs go to shareholder dividends. Many REITs have long-term records of strong total return, combining solid share-price growth with a nice flow of passive income. These four also have raised those dividends enough to provide a total return that exceeds the greater market as represented here by the S&P 500.
Agree Realty (ADC 0.59%), Crown Castle International (CCI 1.57%), and Terreno Realty (TRNO 1.63%) have done in the past 10 years and stocks I own personally. Here’s why dividing up $10,000 evenly could be a great way to generate both passive income and market-beating returns.
TRNO Total Return Level data by YCharts.
Agreeable outcome
Agree Realty is a Detroit-based retail REIT with a fast-growing portfolio. As of the second quarter 2022, it’s comprised of 33.8 million rentable square feet spread across 1,607 properties in 48 states. This net-lease operator has a client list that’s 68% investment grade. Its top five tenants are Walmart, Tractor Supply, Dollar General, Best Buy, and TJX.
Agree boasts a compound average annual return of 12.7% since its 1994 initial public offering (IPO) and has grown its dividend by an average of 5.5% a year in the past 10 years. Agree pays dividends monthly, and its stock is currently yielding about 3.7%.
The company also continues to grow and added 121 new properties for about $430 million in the second quarter alone. It has plans to end the year with up to $1.7 billion in new acquisitions. That should keep the bottom line growing, too.
Towering results
Crown Castle has been a public company since 1998 and has a portfolio of about 40,000 cell towers, 80,000 miles of installed fiber optic cable, and 115,000 small cell nodes. The latter merited special mention in the company’s second-quarter report, where CEO Jay Brown says 2022 will be “an important transition year.” Crown Castle is significantly ramping up installation of those small antennas that are so critical to pushing 5G network rollouts in neighborhoods and buildings.
That should help the Houston-based infrastructure REIT meet its goal of delivering annual dividend-per-share growth of 7% to 8%. And that should help Crown Castle build on a record of serving major mobile carriers and myriad others of this critical real estate that has powered the company stock to more than triple the S&P 500 in total return since its IPO almost 30 years ago.
Terreno Realty builds its portfolio and its payouts
Terreno Realty is an industrial REIT and is an interesting play on the logistics space. The company specializes in small warehouses and improved land parcels near key transportation hubs in and around San Francisco, San Jose, Los Angeles, Seattle, New York City, Miami, and Washington, D.C.
Terreno stock is yielding about 2.5%, still a bit paltry considering its depressed share price (its shares are down 25% year to date). Its relatively meager payouts have been my biggest concern in owning this stock. However, things are getting better. The company just announced it was raising its third-quarter 2022 dividend by nearly 18%, to $0.40 a share.
The portfolio is regularly growing. As of the second quarter of 2022, Terreno has spent $316 million, at an average transaction price of about $15 million, to grow its portfolio to about 250 buildings and 42 land parcels. It’s already announced the acquisition of two more properties so far this month.
The company is focusing on what it calls “flexible assets,” which cater to sub-market tenant demands, such as last-mile distribution, in locations that have physical and regulatory constraints to add new supply. This should keep revenue and dividends growing at Terreno for some time to come.
Success divided by three and then multiplied with these real estate stocks
Agree Realty, Crown Castle International, and Terreno Realty have very different portfolios, but each has beaten the S&P 500 in total return for years and has the prospects to continue doing just that while also providing a stream of passive income. Divvying up $10,000 across these three REITs should yield impressive results over time.
Marc Rapport has positions in Agree Realty, Crown Castle International, and Terreno Realty. The Motley Fool has positions in and recommends Best Buy, Crown Castle International, Terreno Realty, and Walmart Inc. The Motley Fool recommends The TJX Companies and Tractor Supply. The Motley Fool has a disclosure policy.
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