Financial markets have been concerned about the short-term prospects for the US economy throughout the year. This, coupled with geopolitical concerns in Eastern Europe and Taiwan, has fueled the crisis S&P500 Index down 14% year-to-date.
Since the stock market is actually a market of individual stocks, some stocks have performed significantly worse so far, while others have held up significantly better. Down 4% or up 16% YTD, Real Estate Investment Trusts (REITs) American tower (GOVERNMENT OFFICE 1.38%) and VICI properties (VICI 1.64%) belong in the latter category. For this reason, both stocks are probably still buy recommendations.
1. American Tower
Think for a moment: When was the last time you were in public and Not Do you see at least one person using their smartphone? I’d bet it’s been quite a while.
American Tower is the world’s largest communications REIT, with more than 220,000 cell towers and a few dozen data centers. This puts the company at the forefront when it comes to enabling us to use our smartphones frequently. American Tower’s infrastructure is in high demand, which is why large telecom tenants such as T Mobile agree initial lease terms of five to ten years. And the company’s leases also include 3% annual escalators in the United States and international escalators tied to local inflation indices.
As much as global monthly mobile data usage has exploded over the past decade with the advent of smartphones, the best is yet to come for American Tower. That’s because major markets like the United States, Germany, France, and Brazil will see double-digit annual percentage growth rates in monthly smartphone data usage through 2027.
Coupled with its ever-growing rental income from already-owned properties, which comes from renting escalators, American Tower will make numerous investments over the coming years to meet this increasing need for mobile data.
And as if that weren’t enough, the stock offers investors a 2.1% dividend yield. American Tower shares can be purchased at a forward price to adjusted funds from operations (AFFO) ratio of 28.4, which is profitable for a company with a promising future.
2. VICI properties
Owning 43 premier gaming properties in Las Vegas and throughout the United States, VICI Properties is the largest experimental REIT in the world. His properties include the famous Caesars Palace Las Vegas, the Venetian Resort Las Vegas and Borgata.
When gaming companies need capital to pay off debt or finance real estate construction, VICI Properties is often the first choice. This explains why the company’s real estate portfolio has the longest weighted average lease term of any publicly traded REIT at 43 years. And since the REIT has collected 100% of its rent since the start of the COVID-19 pandemic, it has proven to be one of the most stable real estate companies in the world. VICI Properties also has a staggering 96% of its rental rates indexed to the consumer price index through 2035. This is a mechanism that incorporates growing rental income into the equation for the business from the start.
VICI Properties offers yield-oriented investors a 4.2% dividend yield. And with a target dividend payout ratio of 75%, investors can sleep well at night knowing there’s a large buffer to sustain the dividend in an economic downturn. This also serves the purpose of ensuring that the REIT retains sufficient funds to continue acquiring real estate in the future.
Best of all, VICI Properties trades at a forward price to AFFO ratio per share of 18.2. This is hardly a premium rating for a company with plenty of growth still to come, making VICI Properties a buy.
Kody Kester has positions in American Tower and VICI Properties Inc. The Motley Fool has positions in American Tower and recommends American Tower. The Motley Fool recommends T-Mobile US and VICI Properties Inc. The Motley Fool has a disclosure policy.