High dividends combined with long-term growth can make you rich over time, and the real estate sector is an excellent place to find this millionaire-making combination. Real estate investment trusts can pay excellent dividends and lots of room to grow, without a high level of risk. Here are two in particular that income-seeking investors should take a closer look at.
|
Company |
Recent Share Price |
Dividend Yield |
|---|---|---|
|
Welltower (WELL -0.76%) |
$68.83 |
5.1% |
|
Prologis (PLD -0.62%) |
$64.57 |
2.8% |
Data source: TD Ameritrade. Share prices and dividend yields as of Oct. 5, 2017.
Prologis invests in distribution centers and other logistics properties. (Note: Image does not necessarily show a Prologis property.) Image source: Getty Images.
A defensive industry with a lot of growth potential
Generally speaking, the healthcare industry is a rather defensive, long-term investment. No matter what the economy does, people need healthcare, so healthcare businesses tend to be recession-resistant. In addition, there is tremendous room for growth in the industry, as the continued retirement of the baby boomer generation is expected to create a surge in the senior citizen population, a group that uses healthcare facilities more than younger Americans.
One way to invest in healthcare that could really pay off is through real estate, especially those types of healthcare properties that serve older individuals. Welltower is not only the largest healthcare REIT in the market, but with 70% of its portfolio concentrated in senior housing properties (and the rest made up of long-term/post-acute care and outpatient medical properties), it is in a unique position to benefit as the population ages. In fact, the 85-and-older age group, which is the target demographic of senior housing, is expected to double over the next 20 years.
Image source: Welltower.
Welltower has been around since 1971, and has nearly 1,400 properties in the U.S., U.K., and Canada. Despite its size, Welltower only has a roughly 3% market share and less than 15% of all healthcare real estate is REIT-owned, which means that in addition to the long-term growth potential, there's ample opportunity for growth via acquisitions of existing properties.
Over its 46-year history, Welltower has had a fantastic track record of strong returns and dividend growth. In fact, its 15.5% annualized total return means that a $10,000 investment in the company in the early days would be worth roughly $7.6 million today.
An outside-the-box way to invest in e-commerce
Industrial REIT Prologis describes itself as the world leader in logistics real estate. The company specializes in distribution space (think warehouses), and has $72 billion in real estate assets under management with 684 million square feet of space.
Prologis' top tenants include companies such as Amazon.com, DHL, Wal-Mart, and The Home Depot, and while these are huge companies, it's important to point out that Prologis' 25 largest tenants make up just 19.3% of its rental income, so the revenue stream is well diversified.
An investment in Prologis is an investment in the growing global consumption, as well as the evolution of the supply chain. Over the past 35 years, global consumption has roughly tripled, and the rise in e-commerce has created a booming need for distribution facilities. E-commerce fulfillment needs roughly three times the floor space as brick-and-mortar retailers, and Prologis aims to help companies meet this need.
And this trend is expected to continue -- in fact, the company estimates that there's currently a need for an additional 3 billion square feet of modern logistics space. Additionally, e-commerce sales are projected to grow by 162% in just the five-year period from 2015-2020, which will continue to drive demand.
Image source: Prologis investor presentation.
Prologis has investment-grade credit, as well as a fantastic track record of creating value for shareholders. And while its dividend isn't exceptionally high for a REIT, its 8% annualized dividend growth rate over the past five years doesn't appear to be in any danger.
These are long-term investments, so act accordingly
To be perfectly clear, I think investors in both of these stocks will do well over the next decade and beyond. However, like most stocks, these REITs can be quite volatile over shorter periods of time. For example, rising interest rates tend to pressure REIT share prices, so if the Federal Reserve raises rates faster than expected, it could certainly cause both of these stocks to drop.
The point is that these are fantastic long-term investments, and are best suited for investors with a sufficient time horizon to ride out any of the temporary ups and downs and let the long-term compounding power of these stocks work.
