Starting stocks to buy in the bear market dip and hold forever

Real estate investment trusts (REITs) are a fantastic way to get started in the world of real estate investing while earning consistent income through dividends. Since REITs are required to pay out 90% or more of taxable income as dividends, they are a reliable way to earn above-average dividend yields on investments.

These special real estate stocks can be an especially attractive investment when the market is down, as dividend yields increase as stock prices fall. This makes today’s market decline a fantastic time to get started.

But given that there are 200 publicly traded REITs to choose from, it can seem overwhelming to know where to start. If you’re looking for solid REIT choices that offer consistent returns, a strong track record, and fantastic growth opportunities, look no further than Digital Real Estate Trust (DLR 0.02%), Prologis (PLD 0.49%)and Medical Properties Trust (MPW -0.81%).

Here’s a closer look at the stocks that three Motley Fool contributors consider excellent startup REITs to hold for the long term.

Digital Realty Trust offers a data-centric version of traditional REITs

Kristi Waterworth (Digital RealtyTrust): When it comes to starter REITs, there are few I would recommend more highly than Digital Realty Trust. While not exactly what you might think of when it comes to a REIT, Digital Realty Trust has a long track record of success and is serious about long-term planning.

Digital Realty Trust is a data center REIT, so instead of focusing on renting real estate to companies or individuals, it rents server space to companies in need of storage or computing power additional from approximately 290 data centers located around the world.

Free cash flow has grown steadily since 2014, and the company has used that cash wisely to expand its business in markets that have significant growth potential. The acquisition of Teraco, a South African provider of data centers and interconnection services, on August 1, strengthened the FPI’s position on the African continent. Digital Realty Trust now controls data centers in Kenya, Mozambique, Nigeria and South Africa, effectively serving the entire growing African market.

International Business Machines, Oracle, Metaplatforms, Microsoftfrom LinkedIn, Comcast, JPMorgan Chase, Verizon Communicationsand AT&T call Digital Realty Trust’s server farms home. It’s also a forward-looking company when it comes to the planet, as it continues to expand its use of renewable energy for data centers, with 119 global data centers powered by 100% renewable energy.

As if that weren’t enough, dividend payouts have grown consecutively over the past 16 years, from $1 per share in 2005 to $4.64 in 2021. That’s a compound annual growth rate of 10% without no signs of stopping as the world continues to pursue more and more digital solutions to real-world problems.

Taking industrial real estate to a new level

Liz Brumer-Smith (Prologis): Prologis is one of the largest REITs by market capitalization, holding interests in and ownership of over 4,700 industrial properties in 19 countries. This giant REIT quickly made a name for itself as a global logistics leader, serving the growing e-commerce industry by leasing warehouse, distribution and last-mile centers to approximately 5,800 customers. , including major tenants such as Amazon, fedex, Home depositand walmart.

The past decade has been incredibly strong for the company, producing an annualized return of nearly 18% outperforming the S&P500. But the coronavirus pandemic has enormously accelerated its growth. Low supply, high barriers to entry and increased demand have created the perfect storm for record rental growth. In the second quarter of 2022, rents were up 45.6% year over year and the vacancy rate was below 3%.

And its growth is far from over. It is currently being purchased Duke Real Estate, a smaller industrial REIT, and plans to spend an additional $1.2 billion to $1.7 billion on acquisitions this year on top of that. It’s also extremely well funded with $5.2 billion in cash and cash equivalents and a healthy debt-to-earnings before tax, interest, debt, and amortization (EBITDA) ratio of 4.2 times.

Being one of the largest, most popular and most trusted REITs comes at a cost. Currently, it trades around 29 times its FFO, meaning it trades at a premium to other REITs. Its dividend yield is also low, slightly above 2%. But Prologis’ track record, financial condition, growth opportunities and clear demand are difficult to compare to other REITs, and its premium is worth it in the long run.

Solid returns whether the market is healthy or not

Mike Price (Medical Properties Trust): Shares of Medical Properties Trust have been crushed this year, although they have rallied somewhat since falling nearly 40% through mid-June. The business, meanwhile, is still going strong.

Medical Properties is a good mix of conservatism and growth. It leases real estate to hospitals, which are resistant to recession and inflation. Because its tenants are so reliable, it is able to leverage the balance sheet and grow.

The REIT has grown its gross investment property from less than $2 billion 10 years ago to more than $17 billion today. Revenues grew from $200 million to $1.6 billion over the same period. Most of this growth has been financed by debt, and the current treasury stands at over $10 billion. However, less than a third of the debt matures in the next three years and the vast majority of it already has low fixed rates.

This combination led to strong returns ahead of this year’s REIT market crash. The REIT’s total equity return since its inception in 2005 is 661%, compared to 341% for the healthcare REIT market index. The REIT has also beaten this index in the previous three-, five- and ten-year periods.

A general decline in house prices and an increase in interest rates will hurt Medical Properties like all other REITs, but it certainly won’t kill 30% of its value (the amount the stock has fallen this year ). Medical Properties is uniquely designed to benefit from rising inflation and the majority of the debt on its balance sheet is sheltered from rising interest rates.

Medical Properties trades at just 1.14 times book value and has a forward dividend yield of 6.74%. It’s a great starter buy for income investors.

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a board member of The Motley Fool. JPMorgan Chase is an advertising partner of The Ascent, a Motley Fool company. Randi Zuckerberg, former director of market development and spokesperson for Facebook and sister of Meta Platforms CEO Mark Zuckerberg, is a board member of The Motley Fool. Kristi Waterworth has positions at Amazon and FedEx. Liz Brumer-Smith holds positions at Digital Realty Trust, Duke Realty and Prologis. Mike Price holds positions at Home Depot and Medical Properties Trust. The Motley Fool maintains and recommends Amazon, Digital Realty Trust, FedEx, Home Depot, Meta Platforms, Inc., Microsoft, Prologis and Walmart Inc. The Motley Fool recommends Comcast and Verizon Communications. The Motley Fool has a disclosure policy.

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