Fun fact: Real estate investment trusts (REITs) were created in 1960 as part of the Cigar Excise Tax Extension of 1960. And at times, they have been delivering smoking returns ever since.
The REIT Act was slipped into that tobacco-taxing measure to give people without a lot of capital a way to invest in real estate without buying it directly. Now there are more than 200 publicly traded REITs from which to choose.
Most REITs specialize in sectors like apartment buildings, billboards, data centers, and much more. And many have proved to reliably provide a growing flow of passive income for decades. Three great examples to consider for an April investment are American Tower (AMT 0.39%), Prologis (PLD -1.34%), and Realty Income (O 1.95%).
American Tower is a giant in the cellphone tower business and a member of the small family of infrastructure REITs, while Prologis is an industrial REIT and the largest owner of warehouse space on the planet, and Realty Income is the largest of the retail REITs.
This chart shows how soundly these three REITs have beaten the Vanguard Real Estate ETF (VNQ 0.52%) in total return over the past five years. That ETF (or exchange-traded fund) is frequently used as a benchmark for publicly traded REITs. It typically owns about 160 REITs and is weighted by their asset size. (These three REITs account for nearly 17% of that ETF's current holdings, underlining how well they perform relative to the REIT sector.)
PLD total return level data by YCharts.
Now, a look at each of these outperformers.
1. American Tower
Boston-based American Tower owns and operates a global portfolio of communication sites, including about 225,000 wireless and broadcast towers and a collection of data centers around the world. Thousands of customers -- including all the major mobile carriers -- lease space from this REIT, and the increasing demand for 5G technology should keep the coffers full and growing.
American Tower also is a pioneer in the mobile communications industry and has built an enviable record since its 1998 initial public offering (IPO), more than doubling the S&P 500 in total return since April 2000 while growing a $5,000 investment made then into about $71,500 now.
At the same time, the company has met a key obligation as a REIT -- to pay out at least 90% of its taxable income as dividends -- with a payment record that includes 12 straight years of dividend increases. The stock currently sells for about $200 a share and is yielding about 3.1%.
2. Prologis
Prologis has a portfolio of about 5,500 properties containing 1.2 billion square feet of warehouse and distribution-center space, the kind of logistics real estate that exploded in demand during the pandemic and remains strong as e-commerce just continues to grow.
The San Francisco-based REIT serves approximately 6,000 customers in 19 countries across the Americas, Asia, and Europe, adding geographic diversity that can help weather economic downturns that might be particularly bad for one company or region.
Prologis made its first IPO in 1994 as predecessor Security Capital Industry Trust. The powerhouse now named Prologis has posted nearly identical total return numbers as American Tower since the turn of the century, easily doubling the S&P 500 while turning that $5,000 investment then into about $71,200 now. And after 10 straight years of dividend increases, the stock is yielding about 2.8% at a share price of about $123.
3. Realty Income
Last but hardly least in this list is the trust that calls itself The Monthly Dividend Company. Realty Income has been paying investors that frequently for nearly 55 years. And since 1994, when it went public, it has raised the payout 120 times.
The San Diego-based REIT now has a portfolio of more than 12,200 properties across the United States, Spain, and the United Kingdom. The great majority of its rental income comes from retail tenants, but the company also has a smattering of other types of property, including a Boston casino.
Realty Income's performance over time has been even more impressive than the other two in this list: more than tripling the S&P 500 in total return since 1994 and turning a $5,000 stake then into about $262,000 now. And it has the highest yield among the three right now, at about 4.9%, while trading for about $63 a share.
Defensive stocks for any season
Because they own revenue-generating properties that can provide the income to sustain dividend payments, REITs are often viewed as defensive investments that can potentially hold up better during economic uncertainty than other types of stocks.
American Tower, Prologis, and Realty Income fit that bill, and they rate special consideration because of their size, dominance in their niches, strong balance sheets, solid credit ratings, and long-term performance that should stand them and their investors in good stead for years to come.
They are each also at attractive price levels at the moment, down year to date from about 11% for Realty Income to 25% for Prologis. Any or all of these should be a good buy this spring season.
