Just because a business isn’t new and exciting doesn’t mean that it isn’t capable of market-beating returns. In fact, some of the best-performing stocks of the past few decades have been from industries many investors consider boring. Here are two designed for stable cash flow and steady growth that have delivered massive returns to their early investors.
Built for stability and growth
I’ve called Realty Income (O 1.09%) the best all-around dividend stock in the market. And while that’s high praise, I certainly think there’s a solid argument supporting that statement.
If you aren’t familiar, Realty Income is a real estate investment trust, or REIT (pronounced “reet”), specializing in single-tenant properties, mostly occupied by retail tenants. But don’t let the word “retail” scare you away.
Most of Realty Income’s tenants are high-quality companies with recession-resistant businesses not easily disrupted by e-commerce. Think drug stores, dollar stores, warehouse clubs, and convenience stores, to name just a few. In addition, Realty Income has substantial portfolios of industrial and agricultural properties, and it recently jumped head-first into the gaming real estate space with its acquisition of Encore Boston Harbor.
Not only are Realty Income’s more than 11,000 properties mostly occupied by solid tenants, but these tenants also sign long-term net leases with initial terms of a decade or more and built-in annual rent increases. All Realty Income needs to do is get a tenant in place, and the income takes care of itself.
This is a pretty boring business, for sure, but its performance hasn’t been. Since listing on the NYSE in 1994, Realty Income has delivered market-beating 14.4% annualized returns for investors. So a $25,000 investment would have grown to more than $1.2 million in less than 30 years — and with a business model that allows investors to sleep well at night.
An industry leader in a surprisingly exciting market
If I were to ask you what type of commercial real estate stocks performed best during the COVID-19 pandemic, you might guess one of the tech-focused types, like data centers, or the e-commerce-linked industrial real estate space. But the answer is that no real estate subsector performed better than self-storage. People needed to move things out to make room for their new home offices and decided to declutter their homes as they spent more time there — big catalysts for the self-storage industry.
When it comes to self-storage real estate operators, Public Storage (PSA 2.02%) is in a class by itself. The company owns more than 2,800 facilities with 202 million rentable square feet and is one of few REITs with an A credit rating. Since 2004, Public Storage’s same-store net operating income (NOI) has grown by more than double the rate of the average real estate operator, and it has significantly higher margins than any of its major peers.
Although it’s the largest player in its space, don’t make the mistake of thinking Public Storage has maxed out. The portfolio has grown by 26% since 2019 through a combination of acquisitions and development. And with a rock-solid balance sheet, there is a ton of room to keep growing in the years ahead.
The self-storage market may cool off a bit now that the COVID-19 storage surge is largely over, but the long-term fundamentals are solid. With the stock more than 30% below its 52-week high and an attractive 2.9% yield, Public Storage could be worth a closer look now.
As far as the business goes, it doesn’t get much more boring than self-storage facilities. But consider these returns. Since 1990, Public Storage has delivered a staggering 11,090% total return — and that’s after the recent pullback.
Buy for the long term
For one thing, when I say these stocks should produce excellent returns, I’m referring to the long term. I haven’t the slightest idea what they’ll do over the next few weeks or months. As we saw in 2022, both can be a little volatile over short periods. And while the excellent past performance doesn’t guarantee future results, there’s no reason to believe they can’t continue generating excellent total returns for years to come.
This content was originally published here.
