Financial markets have been plagued with volatility thus far this year. Uncertainty over high inflation and the possibility of a recession has pushed the S&P 500 index 18% lower year to date.
But the good news is that the correction has made many stocks attractive to investors with a long-term mindset. Here are two consistently growing real estate investment trusts (REITs) that look like great buys for income investors.
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1. Innovative Industrial Properties
With 109 properties spread throughout 19 U.S. states valued at $2.2 billion, Innovative Industrial Properties (IIPR 1.78%) is the leading source of financing for state-licensed cannabis operators, since marijuana is still illegal at the federal level.
NYSE: IIPR
Key Data Points
Don't let IIP's 49% year-to-date crash in its stock -- which stems largely from a recent short-seller report -- fool you. The company is still growing like a weed.
The short-seller report does highlight a valid concern over IIP's lack of tenant diversification. In the first quarter of this year, IIP's top five tenants contributed to 49% of its annualized base rent. But as IIP further expands its tenant base in the future, this will become less of an issue.
However, the short-seller report undermined its credibility, in my opinion, when it referred to IIP as "a marijuana bank masquerading as a REIT." IIP's extensive and growing property portfolio make this assumption rather suspect.
In the first quarter of this year, IIP's total revenue skyrocketed 50.4% higher year over year to $64.5 million due to acquisition activity and annual lease escalators. And the company's adjusted funds from operations (AFFO) per share surged 38.8% higher over the year-ago period to $2.04.
This growth doesn't appear as though it will materially decelerate over the next few years either. That's because analysts anticipate that the U.S. regulated cannabis industry will blossom from $18 billion in 2020 to $47 billion by 2026. This should give IIP plenty of opportunities to acquire more properties to drive its AFFO per share higher.
Since IIP's dividend payout ratio was just 73.5% in the first quarter, this should leave it with the capital necessary to fund future growth. This should translate into more double-digit dividend hikes going forward, which is an incredible amount of growth for a stock that yields a market-smashing 5.5%.
Best of all, IIP is currently trading at a trailing-12-month price-to-AFFO-per-share ratio of only 17.6 at the current $127 share price. This is a definite bargain for a stock that should have years of double-digit annual AFFO per share growth left in the tank.
2. Medical Properties Trust
With a $22.2 billion real estate portfolio comprised of approximately 440 properties across the U.S. and nine other countries, Medical Properties Trust (MPW 2.72%) is a leading hospital REIT.
NYSE: MPW
Key Data Points
Contrary to what the 24% year-to-date drop in the stock's share price may lead an outsider to believe, Medical Properties Trust is a fundamentally healthy business. This was backed up by the 8.8% year-over-year increase in AFFO per share to $0.37 in the first quarter of this year.
This growth appears positioned to largely continue in the years ahead. That's because, for one, Medical Properties Trust's massive real estate portfolio barely scratches the surface of a $1 trillion-plus hospital real estate market. And since Medical Properties Trust's dividend payout ratio was 80% over the last 12 months, the company is retaining enough capital to fund more property acquisitions.
This payout ratio arguably makes Medical Properties Trust's mountainous 6.5% dividend yield safe for the foreseeable future. And at the current $18 share price, investors can buy the stock at a trailing-12-month price-to-AFFO-per-share ratio of just 12.8.
