There are many publicly traded stocks whose businesses require a PhD in engineering or some other higher credential to fully understand. For example, it would be difficult to thoroughly explain investment banking to the average American, especially in a short article.
On the other hand, there are plenty of excellent businesses that are easy to understand. Not only that, but some of them are fantastic investments for income-seeking investors. Here are three in particular from the real estate sector that you might want to put on your radar.
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1. STORE Capital: The sale-leaseback model
One of the more interesting real estate businesses is known as the sale-leaseback transaction. Here's the basic idea of how it works. Let's say that you want to open a grocery store. You pay to construct a building and set up shop. However, it might not make good business sense to have millions of dollars tied up in real estate. So, a company like STORE Capital (STOR) could buy the building and lease it back to you. Now, you free up your money, which you can use to expand your business, and STORE Capital gets a steady stream of reliable rent payments.
This is the basic idea behind STORE Capital's business model. And this easy-to-understand model can produce some pretty impressive returns if the strategy is implemented correctly. Since going public about seven years ago, STORE has produced a 119% total return for investors, and the stock pays a reliable 5% dividend. With a massive addressable market opportunity, STORE could have decades of growth ahead of it, and investors could be handsomely rewarded.
2. Physicians Realty Trust: The most resilient type of real estate?
Perhaps the simplest business model of all is acquiring commercial real estate and leasing it to tenants. And that's exactly what Physicians Realty Trust (DOC) does.
As the name implies, Physicians Realty Trust focuses on healthcare real estate, particularly medical offices. The company leverages its relationships with health systems and medical practitioners to find attractive deals occupied by rock-solid tenants.
Medical office real estate is perhaps the most resilient type of commercial real estate. Tenants sign long-term leases and tend to renew (after all, how often does your doctor change offices?). Healthcare is an inherently recession-proof industry, and it was also one of the more "essential" property types during the COVID-19 lockdowns. With a generous, well-covered 5.5% dividend yield and lots of growth potential, this is an easy-to-understand business that could be a great fit for your dividend portfolio.
3. American Campus Communities: A product that sells itself
American Campus Communities (ACC) is the only publicly traded real estate investment trust (REIT) that is exclusively focused on student housing. The company develops, buys, sells, and manages purpose-built student housing communities located on or near major universities.
The vast majority of the housing supply near the company's target universities consists of standard apartment communities as well as antiquated on-campus housing, with an average age of more than 50 years. American Campus Communities operates modern properties with excellent student-focused amenities like pools, game rooms, and more; offers individual bedroom leases; and just provides a better all-around living experience than the alternatives.
The best part? The typical bedroom in an American Campus Communities property costs about the same as the standard shared on-campus housing unit. Offering a far superior product for the same price is a winning business recipe, and that's exactly what American Campus Communities does. In 2022, college applications are expected to surge by double-digit percentages, while new housing inventory is at its lowest level in over a decade, so it could be a great time to buy this 3.5%-yielding REIT with plenty of long-term upside potential.
Great long-term income investments
The bottom line is that if you're a patient long-term investor, there's no need to invest in complicated businesses that you don't understand. All three of these stocks have business models that can be explained in just a sentence or two, and all have the ability to generate market-beating total returns over time.
