It's been a volatile year for investors. What started as a simple market dip has officially become a full-on market correction. While no one wants to see their stock portfolio fall, bear markets can be a fantastic time to stock up on high-quality stocks.
Real estate investment trusts (REITs) in particular can be an appealing investment to buy when the market's down because of their higher dividend returns. Iron Mountain (IRM -0.78%) and Terreno Realty (TRNO 0.19%) are two REITs I've had my eye on for quite some time, and today's dip makes it a perfect time to buy.
Iron Mountain is a diversified REIT specializing in the physical management and storage of documents, art, collectibles, and paperwork for corporations and individuals. It's a unique niche that Iron Mountain absolutely dominates, having produced $4.2 billion in revenue for the trailing 12 months. Its legacy business, physical storage services, has been Iron Mountain's bread and butter for decades. But to compete in our rapidly advancing technological world, the company is expanding its services to include the leasing and operation of data centers.
Publicly traded data center operators are becoming harder and harder to come by. Recent acquisitions by public and private companies as well as other REITs have taken three of the previously five data center REITs off the market. Switch, a public data center operator that was in the process of becoming a REIT will soon be gone too, meaning there are just two data center REITs remaining -- both of which I'm invested in. I believe in the growth of this industry and want as much exposure as I can get.
Iron Mountain allows me to further expand my investments in this fast-growing niche while also offering exposure to its legacy business, which I think holds tremendous value. Iron Mountain, unlike the S&P 500, is up 1.66% and 25% year to date. Yet it's still trading at a reasonable value of 14 times its projected adjusted funds from operations for 2022. It also has nine years of consistent dividend increases with an attractive 4.65% dividend return right now.
Another industry I'm extremely bullish on is industrial real estate. The past few years have been stellar for industrial operators, with vacancy rates being at some of the lowest levels in history. This has pushed rent growth into double-digit territory as tenants compete for limited space, particularly in gateway markets along the coast. Los Angeles has the lowest vacancy rate of all major markets, with just 0.5% of available industrial space as of Q1 2022.
This is tremendous news for Terreno Realty, which owns and operates 256 industrial buildings in six coastal markets: Los Angeles, New York City/New Jersey, the San Francisco Bay Area, Seattle, Miami, and Washington, D.C. The company achieved a 34.8% increase on new and renewing leases in Q1 2022 and its portfolio, aside from the four properties under redevelopment, is 96.9% leased. Net operating income and funds from operations (FFO), both important metrics in evaluating REITs, have grown year over year and quarter over quarter.
The major bonus here is that recent market volatility has cooled Terreno Realty's rather richly valued share price. Its stock is down 25% year to date, which means it's trading around 35 times its FFO. This valuation is still quite high, but given the barriers to entry for industrial real estate in the markets Terreno operates in, and the momentum at which this industry is growing, I believe its premium price is warranted.
Today's outstanding double-digit growth is something I see being substantiated for quite some time as e-commerce continues to grow and manufacturing makes its way back to the U.S. Terreno Realty has raised its dividend for the past four years, and has a healthy payout ratio of just 63% today, meaning its current dividend return of 2% looks super stable. I purchased my first investment in Terreno last week and plan to buy shares in Iron Mountain once it clears trading restrictions.