Faced with labor shortages and rising costs, the hospitality and restaurant industry continues to wade through effects of the pandemic. But it isn't all bad. A number of companies have rewritten the script and are thriving again. In this Motley Fool Live segment from "The 5" recorded Oct. 8, Fool.com contributors Jason Hall and Nicholas Rossolillo discuss why Realty Income Trust (O 1.28%) and Texas Roadhouse (TXRH 1.88%) are doing just fine.
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Jason Hall: My adjacent pick in this area, is a real estate company, Realty Income. The ticker is O. Company markets itself to investors, as the monthly dividend company. They've raised their dividend like 111 times, and I should say from their most recent presentation that I'd just wanted to share. Since it was listed in 1994, it has delivered 15.3% annualized compounded returns. Last I heard that's pretty good. Again, it's a real estate investment trust, so dividend growth is a part of that. It has grown the dividend about 4.4% on a compounded annual base. This profitable, positive earnings per share, 24 of the past 25 years.
It's an e-commerce resistant business. They tend to own these stand-alone properties for things like restaurants, experiential venues. They don't have a tremendous amount of exposure to things that are maybe weaker, like theaters. I think maybe 5% of their entire real estate portfolio is in theater, so they don't have massive exposure to an industry that's weak. There's a lot to like. These guys think they can more than double the size of their business from where it is right now. Thinking about industry adjacent, all of these hospitality businesses, you know what they need? Real estate. These are capital challenged businesses in the best of scenarios, partnering with somebody else to own the real estate, to make the big capital investment to get it, and then just paying on a monthly basis or quarterly basis to have access to it on an operating basis. It makes a lot more sense. I like Realty Income for the long term here. Nick, what was yours? Welcome back, by the way. I think your internet just got tired. I think it's what we decided.
Nicholas Rossolillo: Now, everyone's streaming Netflix early on Friday afternoon.
Hall: [laughs] There we go.
Rossolillo: I got downgraded in the flow of internet traffic.
Hall: Columbus Day is on Monday, so there you go. Maybe that's it, it's the weekend.
Rossolillo: A long binge-watching. Netflix weekend. I like the adjacent industry. I like that one. Jason, I want that real estate pick. I'm looking at stuff like that as well and specifically, I have my little basket, I have rural and suburban America plays within this space. I have a whole basket of stocks, because I think a lot of people are migrating out of cities. I think one that is not so, maybe, adjacent is Texas Roadhouse. It's actually in the hospitality business.
Rossolillo: Suburban America steakhouse. They don't have any exposure really at all to prevent such cities. But they've done really-- They have this interesting problem. They focus on dinner, they don't really do much. Some of their dining rooms were at max capacity. Other than just adding more restaurants, more stores, which is expensive to develop, how do you grow from that? Well, then the pandemic hits, and then suddenly this company that historically has very little to no online, or delivery, or pickup-from-store business suddenly, now they're pushing 20% per quarter to-go orders. I don't want to say the pandemic solved their problem. That's not the best way to look at it, but it's providing opportunity for them to experiment with a business model they hadn't before. I think they've gotten stronger as a business as a result of that.
Hall: Yeah, you don't see a lot of that in the restaurant business. When business goes down, you just disappear, so being profitable, well-capitalized, and in a great position to use. They already had the online ordering infrastructure in place. It wasn't like they had to spend a ton of money to build something from scratch. Their customers discovered it. I think that's really the key there. That's interesting, that's fun. What's our next topic? Nick, I'm going to take a break it's your turn.
Rossolillo: All right, guys. We've been talking about the chip shortage all year. Now, they're talking about there's going to be a shortage of consumer or electronics in the stores during the holiday shopping season. This problem is just not going away anytime soon. There is big shortage of chips. Now, they're saying possibly not until 2023. This problem doesn't get solved anytime soon.