2 Stocks With the REIT Stuff

"You can't have your cake and eat it, too." I hate that old saying. Give me enough cake to eat and still have some left. Many of us have the same mind-set when it comes to investments. We want reliable dividends, but we don't want to give up the opportunity for shares to grow nicely.

Some investors might assume that we can't have both dividends and growth. But we can. One good alternative is real estate investment trusts. REITs must return at least 90% of their taxable income to their investors, and many of them have reasonable growth opportunities.

Let's look at two REITs whose shares have posted double-digit growth so far in 2012.

4G-ing ahead
American Tower
(NYSE: AMT  ) operates more than 45,000 wireless towers worldwide. The stock is up 11% since the company began operating as a REIT in January. The forward dividend yield is 1.2%. That's OK but not awe-inspiring, But two excellent growth opportunities stand out as better news for American Tower.

One likely growth area is in international expansion. More than half of the towers it operates are in Latin America, India, and Africa. India is an especially attractive market because it has lower wireless penetration than other countries in which the company operates. American Tower is looking to increase its number of towers in India by more than 10% in 2012.

The popularity of smartphones and other wireless devices is another catalyst. Growth in the U.S. alone is projected to increase by 65% for smartphones and quadruple for other devices by 2015, according to research by Altman Vilandrie and Company, Cisco VNI Mobile 2011, and SNL Kagan.

This forecast benefits American Tower because the major telecom companies are increasing the number of transmission locations to keep up with the growth. The telecoms must also pay more for additional equipment on existing towers to support newer 4G technology.

American Tower's lower debt level compared with its main competitors gives it an edge in taking advantage of these growth opportunities. Its debt-to-equity ratio is 2.1. Key rival Crown Castle (NYSE: CCI  ) has debt-to-equity of 3.08. SBA Communications' (Nasdaq: SBAC  ) ratio is 13.75. This edge will probably be put to the test soon, though. American Tower and Crown Castle are both bidding to acquire T-Mobile's 7,000 U.S. towers. SBA is not in the bidding war at this point.

While American Tower operates towers in nine countries, none of them is in Europe. With so much uncertainty in the eurozone, many investors won't complain about that.

Hanging out at the mall
Another REIT with double-digit share increases in 2012 thus far is Simon Property Group (NYSE: SPG  ) , the world's largest real estate company. The stock is up more than 14% since January. Forward dividend yield is 2.7%.

Simon Property is probably known best for the regional malls it operates. The company owns or has interest in more than 170 regional malls in the U.S. and Puerto Rico. It also has more than 150 other properties, including Premium Outlets and community and lifestyle centers.

Last year was a banner one for Simon Property. Funds from operations totaled $2.8 billion, the highest ever recorded in the industry and nearly twice as high as any other U.S. real estate group reported, according to the company. As a result, Simon Property has increased dividends by nearly 19% since the third quarter of 2011.

Can this huge REIT continue its impressive growth? Simon says "yes." I agree.

The company appears to be expanding in smart ways. For example, Simon Property knew it didn't have the footprint in Europe that it wanted. Earlier this year, it acquired a 28.7% interest in Klepierre, a Paris-based developer of high-quality shopping centers across continental Europe. It made the investment at a discount to the net asset value. Buying at bargain prices when others are fearful? Very Buffettesque.

Simon Property has demonstrated its adeptness at growing through partnerships. Partnering limits risks while facilitating growth. Simon Property has forged partnerships with other companies in Italy, Japan, Malaysia, South Korea, and the United States. When the joint developments go well, Simon Property sometimes ups its stakes to have a controlling interest, as it did in 2011 with the King of Prussia mall near Philadelphia.

The right stuff
American Tower and Simon Property Group seem to have the right stuff. Both companies offer clear paths for growth. Continuation of the healthy earnings increases over the past three years should enable them to keep steadily paying out dividends. Of course, the risk remains that either could cut dividends in the future, especially in the event of a global double-dip recession. Both appear to be fairly safe dividend bets for now, though.

Watch especially for more dividend increases. If you see those dividends go up, these REITS are right on track. If the stocks keep growing the way they have so far in 2012, that's icing on the cake.

For other great dividend stock ideas, take a look at The Motley Fool's new free report, "Secure Your Future With 9 Rock-Solid Dividend Stocks." Get your copy of this free report.

Fool contributor Keith Speights has no positions in the stocks mentioned above. Motley Fool newsletter services have recommended buying shares of American Tower. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days. The Motley Fool has a disclosure policy.


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