With rising fears that a recession could be on the horizon, the S&P 500 index has dropped about 20% year to date.
But because more investors are turning to legitimate, high-yield dividend stocks to help them navigate the market downturn, this has helped some stocks to hold up better than the broader market. Here are two real estate investment trusts (REITs) that have outperformed the markets so far this year and look like buys in this bear market.
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1. VICI Properties
In exchange for ownership of gaming properties, VICI Properties (VICI 1.18%) provides its clients with capital. These clients then lease these properties back from the REIT and agree to pay all of the expenses associated with the property. They also cut a base rent check to VICI Properties every month. The appeal to prospective clients is that this capital can be used to expand their businesses or pay down debt.
With a portfolio of 43 world-class gaming properties, VICI Properties' philosophy is property quality over property quantity. The company's portfolio includes iconic properties such as Venetian Resort Las Vegas, the Borgata in Atlantic City, and Hard Rock Cincinnati. The name recognition of these properties has led VICI Properties' tenants to perform well in spite of the COVID-19 pandemic. In fact, VICI Properties has collected 100% of its rent to date since the start of the pandemic. The vast majority of the company's leases (96%) are also linked to the consumer price index over the long run, which means that inflation will provide a built-in boost to VICI Properties' rent revenue.
The company's steady and growing rent revenue has translated into a 7.8% annual dividend growth rate over the last three years. VICI Properties' 77.1% dividend payout ratio in the last 12 months is only slightly above its targeted payout ratio of 75%. This should allow for at least mid-single-digit to high single-digit annual dividend growth in the years ahead, which is strong growth potential considering the stock's 5% dividend yield.
Investors can snag VICI Properties' market-tripling dividend at a sensible forward price to adjusted funds from operations (AFFO) per share ratio of 15.2.
2. Iron Mountain
With 225,000 customers in more than 60 countries, Iron Mountain (IRM -0.97%) is one of the leaders in innovative storage and information management services. What's more, the company's data centers, secure records storage, and document destruction services are trusted by 95% of Fortune 1000 companies.
Iron Mountain's records management and storage services comprised approximately 62.2% of the company's $4.4 billion in total 2021 revenue. The company's core business has proven itself to be a very sticky business model, with boxes of records staying at its facilities for an average of 15 years.
This impressive revenue stability is the result of two factors. First, Iron Mountain is the most trusted leader in document storage and management. That's a large part of why the company boasts a 98% customer retention rate. Second, there are many documents that businesses must keep permanently, like licenses and permits, annual financial statements, and trademarks, copyrights, and patents issued by the federal government.
Iron Mountain's core business drives its revenue and AFFO per share up gradually over time. The data center business is the other part of why the company expects midpoint AFFO per share to increase 8% year over year to $3.76 in 2022.
Iron Mountain's dividend payout ratio of 69% is nearing the company's long-term target of the low to mid 60s. This means that dividend growth will soon resemble AFFO per share growth, which should be in the annual mid- to upper-single-digit range. For a stock with a 5.2% dividend yield, this is an especially attractive combination of yield and future growth prospects.
Investors can pick up shares of Iron Mountain at a forward price-to-AFFO-per-share ratio of just 12.7.
