It is often said within the investing community that compound interest is the eighth wonder of the world. That's because small sums of money can turn into a fortune if given enough time. For example, earning 11% annual total returns on a $300/month contribution would allow an investor to surpass $1 million after just 33 years.
Setting aside $100 a month for each of these three real estate investment trusts (REITs) could make you a millionaire in the span of just over three decades.
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1. W.P. Carey
The first REIT here is W.P. Carey (WPC 2.85%). A $1,000 investment in W.P. Carey 10 years ago would have grown to $3,100 today, which works out to a 12% annual return.
W.P. Carey owns a portfolio of almost 1,300 properties, which are diversified across various property types. Industrial properties comprise 25% of the annualized base rent (ABR), warehouse properties contribute 24%, office properties chip in 21%, and the remainder of the ABR is derived from retail and self-storage properties. W.P. Carey's diverse business enables the company to do well in just about every operating environment.
W.P. Carey's weighted average lease term of 10.6 years also gives the company plenty of earnings visibility and stability. Another attractive component of W.P. Carey as an investment lies in the fact that 99% of its leases have contractual rent increases. That automatically builds growing rent and adjusted funds from operations (AFFO) per share into the business.
W.P. Carey's dividend payout ratio should be around 84% for 2021, which is relatively sustainable for the long haul. And income investors can lock in W.P. Carey's 5.4% dividend yield at a price to AFFO per share multiple of less than 16. At the current $78 share price, W.P. Carey should continue to deliver decent annual returns in the years ahead.
2. Digital Realty Trust
The second REIT is Digital Realty Trust (DLR 0.12%). Investors who made a $1,000 investment in the stock 10 years ago would now be sitting on nearly $3,200, which is equivalent to a 12.2% annual return rate.
With over 280 data centers across 50 metro areas in 26 countries, Digital Realty Trust is one of the largest data center REITs in the world. The company's significant role in helping to power the modern economy explains how it has grown to a $42 billion market capitalization.
As data consumption continues to rise with the rollout of technologies like 5G and virtual reality, the global data center market is expected to grow 18% annually from 2021 to reach $519.3 billion by 2025. Digital Realty Trust's 11% annual core FFO per share growth since 2005 looks set to largely continue going forward due to industry tailwinds.
Digital Realty Trust's 72% dividend payout ratio over the last 12 months also gives the company the flexibility to keep growing its payout to shareholders. Paired with a 3.1% dividend yield, this is an appealing proposition for income investors. At a core FFO per share multiple of less than 23, Digital Realty is priced in a way that should lead to strong annual returns in the years to come.
3. American Tower
The third REIT on this list is American Tower (AMT 0.17%). A $1,000 investment in American Tower 10 years ago would now be worth just shy of $4,800, equating to a 16.9% annual return rate.
If investors buy into the notion that global demand for wireless services will continue to grow as developing nations become wealthier, American Tower is arguably the stock best positioned to capture that growth. That's because American Tower owns roughly 219,000 communications sites in 25 countries, making it the largest cell tower REIT in the world.
American Tower's AFFO payout ratio was 50% through the first nine months of 2021. Coupled with high-single-digit to low-double-digit annual AFFO per share growth, the stock's dividend should rapidly grow in the future. Investors can pick up shares of American Tower's 2.2% dividend yield at an AFFO per share multiple of 27, which is a reasonable price to pay for the company's growth prospects. That's precisely why the stock should continue compounding at a double-digit annual rate over the long run.
