Dividend stocks will not help investors get rich quick. But since only the best companies are able to steadily increase their payouts to shareholders over time, dividend-paying stocks are an investment vehicle that has a strong chance of helping investors build generational wealth.
Here are two real estate investment trusts (REITs) that seem like solid buys for investors looking to build significant, lasting wealth.
1. Iron Mountain
With 1,460 facilities worldwide containing 740 million cubic feet of global physical storage volume, iron mountain (MRI 6.87%) is a leading company in document management and storage. The company is so well established in its industry that 95% of Fortune 1000 companies trust it.
The REIT’s earnings and Adjusted Funds From Operations (AFFO) per share will be stabilized through its document management and storage operations going forward. Iron Mountain’s core business, involving document management and storage, accounted for more than 60% of its total 2021 revenue of $4.4 billion.
The company’s core business is fairly reliable, with records typically remaining at Iron Mountain’s facility for 15 years. This is because companies are required to retain certain documents, such as business licenses and permits, as well as federally issued types of intellectual property, including patents, trademarks, and copyrights, indefinitely. In addition to its industry-leading status, this is why Iron Mountain’s customer retention rate is an astonishingly high 98%.
So far, only 1,300 of its total 225,000 customers have migrated to data centers for storing scanned documents. This represents a huge growth catalyst for Iron Mountain’s data center business. And the stability of its core business, along with the potential for the data center business, is why Iron Mountain anticipates median AFFO growth per share of 8% to $3.76 in 2022.
Coupled with the company’s monstrous 5.1% dividend yield, this should make Iron Mountain an intriguing stock for current and future earnings. This is especially true given that the company is close to achieving its low-to-mid 60% dividend payout ratio target. Once this target is reached, the dividend will increase in line with AFFO per share.
Best of all, Iron Mountain can be bought at a futures price/AFFO per share ratio of 12.9, which is hardly expensive considering its quality.
2. Crown Castle International
It’s a safe bet that many people reading this article do so on their smartphones. In fact, a clear majority of web traffic – 51.4% in the US – came from mobile devices in the second quarter of 2022.
With ownership of over 40,000 cell towers, 115,000 small cell nodes and over 80,000 miles of fiber route, International Crown Castleit is (ICC 0.03%) The infrastructure is widespread throughout the United States. Major telecommunications companies lease the REIT’s communications infrastructure to broadcast signals to customers, which is how smart phone data is then delivered and consumed.
It’s hard to imagine the United States becoming less dependent on smartphones in the future. The general consensus is that quite the opposite will happen. This is why monthly mobile data consumption in the United States is projected to increase by 19.8% per year to reach 54.2 gigabytes by 2027.
Given these promising industry forecasts, Crown Castle is confident that it will be able to achieve its annual dividend growth target of 7% to 8% over the long term. Combined with a dividend yield of 3.3%, the stock looks like an excellent choice for income and growth.
The AFFO is arguably the most reliable measure of profitability and valuation for REITs, as it adds non-cash items such as amortization and depreciation to net income, as well as subtracts maintenance amounts from routine. Crown Castle’s advanced AFFO multiple of 24.2 is not a cheap valuation, but it is reasonable for the company’s quality and growth prospects.
Kody Kester holds positions at Crown Castle International and Iron Mountain. The Motley Fool holds positions and recommends Crown Castle International and Iron Mountain. The Motley Fool has a disclosure policy.