There are different ways to play investment themes. For example, Dutch Bros (BROS -1.04%) is a coffee chain, which would give an investor direct exposure to the large and important restaurant sector. Realty Income (O -0.17%) is a landlord that focuses on owning the types of retail-focused assets that might house a Dutch Bros or some similar business.
One of these two stocks is a growth story, the other an income story. Here's what you need to know to pick which one might be a buy for you.
Dutch Bros: A side of growth with that coffee
Dutch Bros only came public in late 2021. It is a very young company, but it is expanding at a rapid pace. To put a number on that, it ended the third quarter of 2023 with 794 locations, up from 641 in the year-ago period. That's a 25% increase in the coffee chain's store count in just 12 months.
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Over that same time frame, revenue rose 33%. Adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) soared 91%. Those are some big numbers, and they are exactly why an investor would want to own Dutch Bros. The potential for future growth remains strong, too. The company was profitable in the third quarter of 2023 despite spending heavily on growth.
Wall Street warmly welcomed Dutch Bros when it held its initial public offering (IPO). But mercurial investors have since moved on to other trendy investing themes (like artificial intelligence) and Dutch Bros stock has fallen more than 60% from its post-IPO highs. For more aggressive growth investors with a long-term focus, it could be an attractive investment option.
Realty Income's income-focused retail approach
That said, rapid growth comes with risks, such as the chance of a sizable business misstep upending financial results. That's something that some investors won't want to worry about. And still others will prefer to see cash in their hand rather than let management reinvest every penny back into the company to grow it. You don't have to sidestep the retail arena, in which Dutch Bros participates, however. You can buy a real estate investment trust (REIT) like Realty Income that focuses on retail properties.
Basically, Realty Income charges companies like Dutch Bros rent for the privilege of occupying its properties. But it has hundreds of tenants, so the success or failure of a single one (or a single location) doesn't have a huge effect on its overall results. In fact, if a tenant fails, Realty Income can just release the affected properties to someone else, assuming they are located well. You can view Realty Income as a safer way to get exposure to the retail sector. The proof of that is in the dividend, which has been increased annually for 29 consecutive years. You don't build a dividend track record like that by accident.
But there's another wrinkle here: Realty Income's dividend yield is a very generous 5.9% or so. REITs are designed to pass income on to investors, so this isn't shocking. But it does make the stock a solid option for conservative, dividend-oriented investors. For reference, Dutch Bros doesn't pay a dividend, because all of its spare cash is being put back into the business.
Not necessarily better, but vastly different
Dutch Bros and Realty Income both offer investors exposure to the retail sector, but they do so in very different ways. Dutch Bros is like a laser beam, and your returns will depend heavily on how well the company executes its expansion plans. Growth investors will likely find that appealing. Realty Income is more like a light bulb. A laser is brighter, but a light bulb illuminates more areas more consistently. For conservative income investors, that will probably be the better option.
