It's often said that the best time to buy as an investor is when nobody else is willing. This is how you end up acquiring stocks at bargain-bin valuations. But how can you tell when other investors are hesitant to make stock purchases?
A good indicator of bearish sentiment is when stocks are near their 52-week or multiyear low. With the S&P 500 index off 25% so far this year, it shouldn't be surprising to learn that many quality stocks are hovering around their lowest valuations in years. Here are two real estate investment trusts (REITs) that income investors and value investors with capital to spare should consider snatching up today.
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1. Medical Properties Trust
Medical Properties Trust (MPW -1.10%) owns 447 hospital properties in the U.S. and nine other countries worth $22.3 billion. According to the company, this massive scale positions it as the second-largest non-government owner of hospital real estate in the world.
It's not hard to figure out how Medical Properties Trust was able to grow into a REIT of colossal proportions. Hospitals need constant capital infusions to recruit the best and brightest healthcare professionals, procure the most cutting-edge medical equipment and expand services. And the most sensible way to do this is often to leverage the value of its hospital real estate by selling it to Medical Properties Trust and leasing it back from them.
In return, the REIT receives monthly rent checks and agreements from its tenants that they will also cover maintenance, insurance, and tax expenses associated with leased properties. Since hospitals rarely shut down due to the necessity of services provided to local communities, this makes Medical Properties Trust's 10- to 20-year lease terms steady sources of rent revenue.
And as large as the company has become, it has barely scratched the surface of its full potential. That's because Medical Properties Trust operates in a $1 trillion-plus addressable market, which means it has only captured a fraction of the overall market thus far.
At first glance, the company's 10.6% dividend yield would seem to be a yield trap. After all, that's about six times the S&P 500 index's 1.8% yield. But with a dividend payout ratio around 79% and modest future adjusted funds from operations (AFFO) per share growth, the dividend appears surprisingly safe. And at a trailing-12-month price-to-AFFO-per-share ratio of less than eight, Medical Properties Trust is currently about as cheap as it ever has been.
2. W.P. Carey
W.P. Carey (WPC -1.70%) is perhaps the most diversified publicly traded REIT you're going to find on the market. The company's real estate portfolio includes just shy of 1,400 net lease properties throughout the U.S. and Northern and Western Europe. These property types run the gamut from industrial to warehouse and office to retail, with no property type exceeding 27% of the company's total annualized base rent.
Similar to Medical Properties Trust, W.P. Carey purchases properties from clients and leases them back to those same clients as tenants on long-term leases -- the company's weighted average lease term is 11 years. These tenants can then use their capital proceeds as they wish, which often helps them repay debt or expand their operations. Essentially all of these leases contain annual lease escalators, with 58% being tied to the local inflation rate and most of the remaining lease escalators being fixed in nature.
With inflation at multidecade highs in many countries, including the United States, W.P. Carey raised its guidance to a midpoint of $5.26 in AFFO per share for 2022. This would represent a respectable 4.6% growth rate over the year-ago period.
With the dividend payout ratio set to come in around 80% this year, W.P. Carey's whopping 6% yield looks reasonably well-covered. And investors can pick up shares of the stock at a forward price to AFFO-per-share ratio of just 13.5.
