The Dow Jones Industrial Average is an iconic stock market index comprised of the stocks of 30 of the country's largest companies. That makes it a good barometer for the broader stock market.
Dow Jones Industrial Average has delivered a strong total return of more than 180% (10.9% annualized) over the past decade. However, some stocks have absolutely drubbed the Dow's performance by producing even stronger total returns. Rexford International (REXR 0.47%), Equity LifeStyle Properties (ELS -0.36%), and American Tower (AMT -0.70%) stand out to a few Fool.com contributors for their ability to defeat the Dow over the past decade. Here's why they believe this trio of dividend-paying stocks can continue their market-beating performance.
This California REIT offers a hot portfolio at a cool price
Marc Rapport (Rexford Industrial): Rexford Industrial is in the right place at the right time. This real estate investment trust (REIT) owns a profitable portfolio of logistics properties in one of the more in-demand regions of the country, and its stock price has been beaten down to what could be a very favorable level for new money to join in.
Rexford has a portfolio of 365 properties in Southern California focused on a swath of infill areas the company calls "the nation's largest, highest demand and lowest supply industrial market." It also has a solid record that has seen it drub the Dow Jones Industrial Average in total return in the past decade, as shown here in terms of a $1,000 investment made in 2013:
REXR Total Return Level data by YCharts.
Industrial REITs like Rexford are generally positioned well to benefit from the secular trends that have driven new demand for logistics and manufacturing space for e-commerce and now on-shoring to continue their new momentum.
Rexford does its business in a particularly strategic location for e-commerce and logistics, with housing creation mandates and demands for the scarce land available limiting expansion of the property types this trust acquires, builds, and redevelops to serve a wide range of tenants in industries such as consumer goods, food and beverage, manufacturing, and transportation.
It's also on sale. Rexford's share price is down about 15% year over year, pushing its yield to about 3% after seven straight years of dividend increases. Now just might be the time to buy it on the dip and enjoy some more market outperformance with a side of passive income.
Going off the beaten path to produce prodigious returns
Matt DiLallo (Equity LifeStyle Properties): Equity LifeStyle Properties has pulverized the Dow Jones over the past decade. The residential REIT has delivered a more than 330% total return (15.8% annualized).
The REIT's focus on overlooked property classes is a big factor driving those outsized returns. Equity LifeStyle owns and operates manufactured home communities, RV resorts and campgrounds, and marinas. These property classes get little attention from institutional investors since they're not in major markets. So Equity LifeStyle has faced limited competition to acquire and develop new properties, allowing it to earn higher returns on new investments.
Meanwhile, demand for these properties is durable throughout the market cycle due to limited supply growth (zoning restrictions and community opposition) and other factors (it's costly to move a manufactured home). That has enabled Equity LifeStyle to steadily increase rents, driving consistent net operating income (NOI) growth.
Equity LifeStyle's growing NOI and steadily expanding portfolio have driven above-average earnings growth. That has enabled the REIT to increase its dividend at a robust 14.1% compound annual rate over the last decade (much faster than the REIT sector average of 5.4%).
While that past success is no guarantee of future returns, Equity LifeStyle is in an excellent position to continue creating value for shareholders. Demographics and rising housing costs should drive continued strong demand for its properties. That should enable it to continue delivering above-average NOI growth across its existing portfolio. Meanwhile, it has an industry-leading balance sheet, giving it significant financial flexibility to continue expanding its portfolio via acquisitions and property expansions.
Those growth drivers should enable Equity LifeStyle to continue increasing its dividend, which yields an above-average 2.7%. This earnings and income growth combo should drive attractive total returns.
American Tower has been a stalwart over the past decade
Brent Nyitray (American Tower): American Tower is a real estate investment trust that focuses on telecommunications infrastructure, particularly cellphone towers. The company builds cellphone towers and then leases capacity to mobile phone operators, cable companies, and governments. American Tower also owns data center properties, which provide cloud storage and interconnection services. American Tower owns 28 data centers and 224,768 cellphone towers.
The company's growth has been driven by the massive increase in mobile data consumption, which has steadily increased over time. According to one study, demand for mobile data is expected to increase 3.5 times between the end of 2022 and 2028. This will be driven by the rollout of 5G, which improves performance for video traffic and virtual reality.
American Tower has outperformed the Dow Jones Industrial Average over the past 10 years. You can see the outperformance in the chart below:
American Tower believes that capacity will have to double over the next 3 to 4 years and probably need to triple by the end of the decade. The secular growth story of mobile data usage will provide a tailwind for the stock over the next decade. American Tower is guiding for adjusted funds from operations (AFFO) to come in at around $9.65 per share for 2023. At current levels, this gives the company a price-to-AFFO ratio of 19.5 times.
The company also has a dividend yield of 3.3%. Until early 2023, American Tower had hiked its dividend every single quarter over the past 10 years. While it maintained the same dividend between December 2022 and April 2023, it resumed increases for the June dividend.
