Buying and holding high-quality companies for the long term is one of the best ways to build wealth over time. A real estate investment trust (REIT), in particular, can be an ideal forever stock because it offers diversification, growth opportunities, inflation hedge, and superior dividend returns. The cherry on top? You don't have to spend much to get a lot in return.
Invitation Homes (INVH -2.80%), Stag Industrial (STAG -3.79%), and Realty Income (O -3.23%) are three high-quality REITs trading under $100, giving investors a big bang for the buck. Here's a closer look at why these are the perfect forever stocks.
If there's one thing that never goes out of fashion, it's housing. People will always need a place to live, and residential REIT Invitation Homes is banking on that fact. The company has amassed a portfolio of over 80,000 single-family rental homes across the Sun Belt of the United States, building a name as one of the premier institutional landlords in the market today.
Its revenues have increased 120% since its IPO in 2017, while funds from operations (FFO), an important metric to illustrate a REIT's profitability, grew 137%.
The high demand for housing in the southern part of the United States has put Invitation Homes at a competitive advantage. Blended rental rates, which include new and renewing leases, grew 10.9% year over year as of first-quarter 2022. This wasn't an anomaly. Rental rates have risen between 5% and 11% year over year each quarter for the past four quarters, thanks to the Sun Belt's super-sized rental growth.
Even if demand returns to more normalized levels in the future, Invitation Homes is still an ideal forever buy because of the nature of its business. It has a really strong management team that is doing a great job of growing the company's portfolio while managing its debts. The biggest drawback to Invitation Homes is that dividend returns are meager right now, sitting at 1.75%. However, I believe its payouts are poised to grow. It started 2022 off with a 29% jump in dividend payouts, while still maintaining a low payout ratio of 55%.
Industrial real estate has ever-growing importance in our global economy, providing the much-needed space for things like manufacturing and e-commerce. Warehouses and last-mile distribution centers in particular are experiencing record high demand as consumers look online for their shopping needs. Stag Industrial directly serves the growing niche, having 40% of its 544 properties in the e-commerce industry, with its largest tenant by annualized base rent (ABR) being Amazon.
Lack of supply in the U.S. market for industrial space has caused rental rates to soar while vacancy rates remain at record lows. Q1 2022 estimations provided by the company in its latest presentation are expecting straight-line rent changes to jump 26.4% year over year for Q1. Occupancy was at 97.4% at year's end.
Recent volatility in the marketplace and concerns over change in management have pushed share prices down 17% year to date, which is good news for new investors. Shares are trading around 20 times its FFO, a steal compared to most other industrial operators, which are trading upwards of 28 to 30 times FFO. Today's discounted share prices have also pushed its dividend yield to just over 3.6% at the time of this writing.
Realty Income has far fewer growth opportunities than the two others on this list, as it is one of the largest REITs by market capitalization with interest and ownership in roughly 11,000 properties across the globe. However, what it lacks in growth opportunities is made up for in its track record of outstanding performance and superior dividend growth.
Realty Income is one of just four REITs holding the prestigious title of Dividend Aristocrat -- that is, companies that have increased dividend payments for the past 25 years. Plus, it pays monthly dividends, making it an ideal long play for building a reliable passive income. April 2022 marked its 622nd consecutive month of dividend increases, and its dividend return is just over 4% today.
This net lease REIT primarily serves the retail industry. However, its recent acquisitions, including the sale-leaseback purchase of the Encore Boston Harbor Resort and Casino currently owned by Wynn Resorts, give reason to believe the company is pivoting its portfolio in order to grow and add value for its shareholders. Share prices are trading around 21 times FFO, meaning it's fairly valued for its recent performance and a no-brainer forever buy for investors seeking reliable income.