Land symbolized wealth and prosperity in humankind's earliest times, long before the stock market existed. That hasn't changed much. Real estate is a timeless asset and continues to generate fortunes for people today.
The difference now is that you don't need to start with lots of money and know-how to benefit from owning properties. Instead, you can invest in real estate investment trusts (REITs). These specialized companies acquire and lease real estate.
Since REITs must pay almost all of their taxable income to shareholders as nonqualified dividends, they tend to make fantastic dividend stocks. That goes double if you buy, hold, and reinvest those dividends.
Here are three world-class REITs investors can buy and hold for the long term.
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1. Prologis
Global commerce is becoming increasingly digital, requiring massive supply chains. Prologis (PLD -1.76%) has built its business as a REIT specializing in logistics and data center properties. The company owns nearly 5,900 buildings across 20 countries on four continents. Its tenants include manufacturers and retailers across almost every industry.
Prologis is more than a landlord; the company adds value by maintaining its properties at the highest standards, including energy efficiency and accommodations like charging for electric equipment. This adds a lot of value for the tenants, who can occupy the building for their purposes without worrying about all this stuff.
Overall, Prologis is working on an 11-year streak of consecutive dividend increases, including double-digit profit and dividend growth over the past five years. That's strong growth for a stock with a starting dividend yield of 3.6% today. E-commerce and data centers are ongoing growth trends that should create opportunities for Prologis over the coming years.
2. NNN REIT
Dividend consistency can demonstrate a company's ability to navigate adversity. Take NNN REIT (NNN -0.72%), for example. The company has raised its dividend without fail for 36 years, including recessions and the COVID-19 pandemic. NNN REIT owns over 3,600 buildings across the United States and rents to consumer-facing tenants, such as automotive repair shops, convenience stores, restaurants, and drugstores.
Consumer spending is the beating heart of the U.S. economy, so building a real estate business around where Americans spend money daily is brilliant. Additionally, NNN REIT typically uses triple net leases, which further stabilize its revenue streams because the tenant is generally responsible for taxes, maintenance, and insurance. The company maintains an investment-grade-rated balance sheet as a financial safety net.
NNN REIT won't wow you with growth. The business typically grows at a low to mid-single-digit pace, and the dividend's modest growth rate reflects that. Instead, stability is its calling card. NNN REIT yields 5.5% today, and investors can confidently buy and hold the stock, and expect the dividends to continue pouring in.
3. Public Storage
You may not realize how big an industry self-storage is until you drive through most towns and cities and discover how many facilities there are. Public Storage (PSA -2.18%) is a REIT and the world's largest owner-operator of self-storage facilities. The company's portfolio spans over 3,400 properties across the U.S. and Europe. Self-storage is a fragmented industry, and Public Storage has capitalized on that to grow. Since 2019, the company has spent $11 billion to expand its portfolio by 35%.
Expansion has sometimes come at the cost of dividend growth; Public Storage doesn't raise its dividend consistently, but it helps make up for that with the occasional special dividend. Importantly, Public Storage has a strong "A" credit rating from S&P Global, so its inconsistent dividend growth is due to management's responsible decision-making, not because it's a flailing company to avoid.
Today, the stock yields 3.9%, giving investors a solid and dependable income stream from day one. The self-storage industry has high tenant turnover and is sensitive to the economy, so Public Storage's growth may ebb and flow over time. Analysts expect low to mid-single-digit growth over the next three to five years. Therefore, similar to NNN REIT, the stock's primary appeal is that it is a dependable source of passive income.
