Investing early in your career can pay huge dividends later in life. Besides reinforcing the savings habit, regularly buying shares of well-selected stocks can leverage the power of compounding to turn small investments into a big nest egg over time.
While flashy growth stocks attract much-deserved attention, relatively unexciting real estate investment trusts (REITs) also deserve a spot in a nicely balanced portfolio. REITs are income-producing properties whose operators are obliged to pay 90% of their taxable income to shareholders.
Two to consider are retail landlord Agree Realty (ADC -0.48%) and digital infrastructure giant American Tower (AMT -0.70%). They are very different companies that have built similar performance records since their initial public offerings (IPOs) in 1994 and 1998, respectively.
Data source: YCharts
A quarter century of outperformance
Even if you have only $200 to invest now and don't add another cent, that ante can still add up substantially over the years. The chart above shows the 25-year growth of a $100 investment in each of these REITs as well as one of the most closely followed indexes, the S&P 500. This is in terms of total return and thus assumes the reinvestment of dividends.
This outperformance is not an anomaly. While income stocks like this are generally considered less volatile than growth stocks, and thus presumably have both less upside and downside, they can offer just as much potential reward over the long run.
For example, a Hartford Funds analysis of total returns for S&P 500 stocks from 1973 to 2022 found that dividend payers provided an average annual return of 9.18% compared with 3.95% for non-dividend payers.
American Tower's digital dominance
Boston-based American Tower has grown with the mobile communications industry over the past 25 years and now boasts about 225,000 towers and other sites, including data centers, in 25 countries on six continents.
That business should continue to flourish. Demand for space for traditional mobile towers, small cell towers, and data centers continues to grow to support the 5G rollout -- and now includes the explosive adoption of cloud-based artificial intelligence applications from thousands of American Tower's current and future customers.
Agree Realty's recession-resistant retail portfolio
Detroit-based Agree Realty focuses exclusively on owning buildings and land occupied by largely investment-grade tenants that sign long-term leases to house recession-resistant businesses such as grocery, home improvement, dollar, and drug stores.
This classic retail REIT has been leveraging its outstanding credit rating and site-selection skills to continue steadily expanding a portfolio that now includes about 2,100 properties in 49 states. Grocery and home improvement stores lead the way with 9.7% and 8.6% of the current rent roll, respectively.
Built for the long haul, one small investment at a time
American Tower and Agree are both niche investments, in a sense. But they are broad, essential niches and these two operators have long proven they have the chops to build on records of success.
They also pay decently. American Tower yields about 3.2% and has raised its dividend for 12 straight years. Agree has raised its dividend five times since it began paying monthly instead of quarterly in January 2021 and now yields about 4.8%. By contrast, the S&P 500's current yield is about 1.5%.
While there's no guarantee that their past performance will lead to similar gains in the future, there's plenty of reason to be confident that a $100 stake in each of these REITs now will prove to have been a good idea much later on -- especially if it leads to more such investments on a regular basis over the long haul. And that's how wealth is most reliably built.
