Real estate investment trusts (REITs) are often thought of as relatively conservative stocks that offer dividend income ahead of stock price growth. That's because by law, they're required to pay out at least 90% of their taxable income to their investors.
That dividend payout doesn't have to come at the expense of capital appreciation, though. Here's why Digital Realty Trust (DLR 5.18%) and Innovative Industrial Properties (IIPR 1.97%) seem poised to see their share price rise as they continue to steadily pay out a decent yield.
Digital Realty Trust: for the metaverse and more
Digital Realty Trust is a major player in a very essential business that shows no signs of slowing down. This data center REIT has a portfolio of more than 280 properties in 26 countries on five continents, serving as the nerve center for cloud computing, e-commerce, and the Internet of Things.
Investors in what's now the nation's seventh-largest publicly traded REIT have been rewarded with 16 straight years of dividend increases and 11% compound annual growth in core funds from operations (FFO) -- a critical measure of a REIT's profitability -- since 2005.
Data centers cut their teeth as cloud-based storage sites but now are morphing into a hybrid model that combines storage with what have been traditional in-house functions such as cloud computing.
Digital Realty's response to that new paradigm is its PlatformDIGITAL service, which it says "solves your hybrid IT needs by enabling the ever-changing data, control, and networking demands of global enterprises." Good idea. According to GMI Research, this is a market already at more than $52.3 billion a year and is expected to post a compound annual growth rate of 26.3% through 2028.
Digital Realty went public in 2004 and over that time generated a remarkable total return -- share price appreciation plus dividends -- of 2,770%. But the digitally connected world still has a long way to grow -- consider the potential of the metaverse alone -- and DLR and its shareholders' wallets stand well-positioned to grow with this.
Innovative Industrial Properties: for medical marijuana growers
Innovative Industrial Properties buys and leases back facilities to growers of medical marijuana, providing critical capital to an industry that can find it hard to find financing from highly regulated traditional lenders.
Medical marijuana is already legal in 36 states, and it's reasonable to expect that number to keep growing. This REIT's business just keeps growing, too, with the Dec. 14 acquisition of 27 properties in Colorado, Pennsylvania, and North Dakota for $72.7 million. They're all 100% leased to publicly traded, licensed marijuana growers, and these buys pump the portfolio to 103 properties in 19 states, with 7.7 million square feet of rentable space and another 2.6 million under development or redevelopment.
Since its IPO in 2016, IIPR's stock has generated a total return of 1,340% as of the time of this writing. The dividend also has risen tenfold, from $0.15 a share in 2Q17 to $1.50 a share in 4Q21. Its stock currently has a dividend yield of 2.45%. Despite a high stock price, IIPR should have room to rise along with the growth of the cannabis industry.
Two different stocks; same promise of profitable results
Innovative Industrial Properties and Digital Realty Trust are in very different businesses, to say the least, but they share outsized potential for real estate investors looking for promising equities to buy right now.