Investors with a long-term perspective know that while market sell-offs can be unsettling in the moment, they create the best opportunities to build life-changing wealth. The S&P 500 index is down 10% year to date, which has it in correction territory.
But since the stock market is made up of stocks, many of them have sold off even more this year. Here are two growing real estate investment trusts (REITs) that will almost certainly double your initial investment if given enough time.
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1. American Tower
With a market capitalization of $107 billion, American Tower ( AMT 0.53% ) is the largest cellphone tower REIT in the world. The company leases over 220,000 communications sites in the U.S. and 24 other countries to large tenants like T-Mobile and Verizon Communications, which are used to provide cellular service to customers.
Because American Tower is loosely associated with the hard-hit tech sector, it has dropped 17% year to date. While American Tower's stock has plunged recently, there are significant long-term tailwinds that I believe the market won't be able to ignore forever.
First, it's estimated that there are 6.6 billion smartphone users in the world. This works out to nearly 84% of the global population. And as the global economy develops further in the years ahead, it's likely that this percentage will steadily go higher.
Secondly, the worldwide monthly mobile data consumption average of 10 gigabytes (GB) per user in 2021 is expected to more than triple to 35 GB by 2026.
Since smartphone users are growing in numbers each year and consuming more data, American Tower's rent revenue is also in a position to continue growing.
That's why I believe it's reasonable to expect American Tower's adjusted funds from operations (AFFO) per share to keep increasing around the 13.7% compound annual rate that was posted from 2010 to 2020.
And investors can scoop up shares of American Tower's market-beating 2.4% dividend yield at a sensible price for its growth potential. The stock trades at a trailing price-to-AFFO ratio (similar to a price-to-earnings ratio) of just 24.5.
2. Digital Realty Trust
With a market cap of $39 billion, Digital Realty Trust ( DLR -0.68% ) is one of the largest data center REITs in the world. The company owns more than 280 premier data centers in metro areas throughout 26 countries.
Thanks to increasing penetration rates of the Internet of Things and more businesses turning to high-end cloud computing services to optimize their operations, the future looks bright for the industry. That's why the data center industry is projected to grow at 10.5% each year to reach $517 billion by 2030.
Even with Digital Realty Trust's size and scale, the tremendous growth prospects of its industry should allow for core FFO per share growth in the high single digits annually for the foreseeable future. This would be moderately less than the 10% annual core FFO per share growth rate that it has generated since 2005. I think this is being considerate of the law of large numbers, which argues that a company's growth rate decelerates as it becomes bigger.
The recent tech stock decline that Digital Realty Trust was lumped into has led its stock 21% lower year to date. This has brought its dividend yield up to a market-topping 3.6%. Investors can snatch up shares of Digital Realty Trust at a price-to-core FFO multiple of 20, which seems like a great value to hold for the long haul.
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.
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March 08, 2022 at 10:53PM
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