Investing in value stocks is well-known as a great way to earn dividend income with relatively low volatility. But you might be surprised at the long-term share price growth potential some value stocks have.
Not only are these three real estate investment trusts (REITs) excellent income investments, with yields ranging from 3.8% to almost 8% as of this writing, but all have strong track records of producing market-beating total returns for their long-term investors. So, if you have $5,000 or a similar amount of money to invest, here are three great places to put it to work.
The hottest commercial real estate subsector
Self-storage has been the hottest type of commercial property since the COVID-19 pandemic started, and Life Storage's (LSI) recent results show just how strong it is. Adjusted funds from operations (FFO) -- the REIT industry's equivalent of "earnings" -- increased by 20% year-over-year in the fourth quarter, fueled by 12% same-store revenue growth, excellent expense controls, and growth in the business.
Speaking of growth, Life Storage added 49 wholly owned stores and 25 joint-venture properties to its portfolio in 2022. It also added 107 stores to its fantastic third-party management business, including 32 that were formerly managed by its competitors.
It's worth noting that although Life Storage has the makings of an excellent long-term investment, you might not be able to hold its shares for years. Industry-leading self-storage operator Public Storage (NYSE: PSA) recently made an unsolicited all-stock bid to buy the company. Life Storage rejected the offer, but it's entirely possible Public Storage could increase its bid.
There's a lot to like about this beaten-down REIT
The share price of EPR Properties (EPR -0.10%) has been beaten down since last summer, and to be fair, that was for good reason. Its third-largest tenant, Regal Entertainment, is in the middle of bankruptcy proceedings. Not only does Regal lease more than 50 theaters from EPR, but its Chapter 11 filing has called into question the viability of movie theaters in general.
However, those fears seem to be overblown. Recent box office figures suggest that the movie theater industry still has legs, and Regal seems to intend to keep operating most, if not all, of its EPR-owned properties, as it has paid rent on all of them through March.
What's more, EPR's recent results look fantastic. Adjusted FFO grew 14% year over year in the fourth quarter, the REIT deployed over $400 million on new investments in 2022, and up to $300 million in additional spending is expected this year. With an estimated $100 billion market opportunity of experiential real estate, over $1 billion in liquidity, and a rock-bottom valuation of just 8.5 times FFO, EPR looks like a bargain for patient investors.
Excellent growth tailwinds and a great track record
Digital Realty Trust (DLR 0.63%) is a leading data center REIT, with more than 300 properties located all over the world. There are some compelling long-term tailwinds in the data center space, including technologies like augmented reality and autonomous vehicles, as well as the number of connected devices worldwide. All of these trends are growing rapidly. 58% of customer interactions now take place digitally, up from 36% before the COVID-19 pandemic, and the overall digitization of products and services has accelerated faster than most experts had predicted.
Looking forward, Digital Realty has tremendous growth potential, especially overseas. The company recently acquired a leading South African data center operator and formed a joint venture in India, just to name a couple of big opportunities. And for investors, the proof is in the performance: Digital Realty has handily beaten the S&P 500 since its 2004 IPO and has raised its dividend every year.
Buy for the long term
For perspective, if you had put $5,000 into each of these stocks 10 years ago and reinvested your dividends, that $15,000 initial investment would be worth a total of about $41,500 today. And with so much growth potential remaining, there's no reason to believe this group isn't capable of similar returns over the next 10 years. Of course, past investment performance doesn't guarantee future results, but the point is that these are three well-run businesses that could be wealth drivers in your portfolio for decades.
