You might be surprised to learn that investing in the "next big thing" is not the only way to get rich, nor is it the most guaranteed way to do it. Stocks that pay high dividends and have strong growth potential can produce some surprising returns over long periods of time.
Real estate investment trusts, or REITs, in particular have the potential to generate millionaire-making returns, thanks to their favorable tax treatment and total-return investment strategy, designed for both income and capital appreciation. While most REITs have not yet been around for decades, two that have been traded for more than 30 years are Public Storage (PSA +0.55%) and Welltower (HCN +0.79%). And it may surprise you to learn that if you had invested $10,000 in each of these stocks three decades ago, you'd be a millionaire today.
|
Company |
Recent Stock Price |
Dividend Yield |
30-Year Growth of $10,000 |
|---|---|---|---|
|
Public Storage |
$200.95 |
4% |
$641,000 |
|
Welltower |
$71.34 |
4.8% |
$465,000 |
Data sources: Stock prices and dividends yields obtained from TD Ameritrade, and 30-year investment growth obtained from YCharts. Figures are current as of 8/9/17, and 30-year growth is rounded to the nearest $1,000.
Self-storage: A boring business in the best possible way
Public Storage is by far the largest owner and operator of self-storage facilities in the world, with more than 1 million customers at nearly 2,700 storage facilities in the U.S. and Europe.
Image source: Getty Images. (NOTE: Image doesn't necessarily depict a Public Storage facility.)
Most people are familiar with the company's orange-colored storage buildings, but don't know much about the self-storage business itself, particularly that it's capable of producing such amazing returns. In fact, many people assume the self-storage business is boring.
In a nutshell, the self-storage business has remarkably low operating and turnover expenses when compared to most other types of real estate. For example, Public Storage claimed in a recent annual report that it could break even with just 30% occupancy, and its properties are well over 90% full.
One reason that I'm excited about Public Storage's future is its relatively new development program. The company had historically grown organically and through acquisitions, but over the past few years, it has ventured into development.
Developing new properties has the potential to create instant value by building assets for less than their completed value, and also generates 2%-3% higher returns on invested capital than acquisitions. Public Storage's financial strength should allow it to develop properties more efficiently than the competition, and while the program is still relatively small, it creates an exciting potential driver of growth going forward.
Finally, although Public Storage has delivered some amazing returns over the past few decades, the stock has been slumping lately. In fact, since peaking in April 2016, the stock is down by more than 27% and now trades at a 52-week low, mainly due to oversupply worries in several of the company's key markets. However, Public Storage's trusted brand and rock-solid balance sheet should give it an advantage, so now could be a good time to add this millionaire-maker stock to your portfolio while it's on sale.
Healthcare real estate could be just getting warmed up
As you can see from the chart, healthcare REIT Welltower's performance over the past 30 years has been extremely impressive. Even better, Welltower has a track record of delivering excellent returns since 1971 -- in fact, a $1,450 investment in Welltower's IPO 46 years ago would have made you a millionaire (provided that you were around in 1971).
Welltower owns 1,384 healthcare properties, and more than two-thirds of the portfolio is comprised of senior housing, which could be a tremendous growth opportunity going forward. 93% of the portfolio's income comes from properties dependent on private-pay revenue sources, as opposed to government reimbursements like Medicare, which can often be unpredictable.
As the massive baby boomer generation ages, there will be a steadily growing market of senior citizens, who will require a growing inventory of senior housing facilities. In fact, the 85+ population, an age group that's highly likely to make use of senior housing, is expected to double in the next 20 years.
In addition, since medical offices make up a significant portion of Welltower's portfolio as well, consider that the average senior citizen spends more than double the U.S. average on healthcare costs every year, and the average person in the 85-and-older age group spends nearly five times the average. This will not only create a growing market, but could drive property values as well, as commercial properties get much of their value from their occupants' ability to generate income.
Image source: Welltower investor presentation.
The bottom line is that while Welltower has certainly delivered incredible performance throughout its history, the next few decades could be just as strong for healthcare real estate, and as the market leader, Welltower could have an advantage over its peers.
