BUsing stocks when the market is low can be a great way to increase your investment portfolio. Real estate investment trusts (REITs) are particularly attractive because dividend yields and price have an inverse relationship.
When stock prices fall but dividend payments remain the same, dividend yields rise, making REITs the perfect deal to buy.
an introduction (NYSE: PLD) And the digital real estate trust (NYSE: DLR) Two high-quality REITs are trading at a significant discount compared to recent highs. Here’s a closer look at each company and why investors might want to load up on these discounted shares.
1. Industry domination
Prologis is one of the largest real estate investment trusts by market capitalization and the largest industrial operator worldwide. The company, which buys, develops and leases industrial properties such as warehouses and distribution centers, has interest or ownership in more than 4,700 properties in 19 countries.
The limited supply of industrial space and the growing need for industrial real estate in the e-commerce and retail sector has driven rental and occupancy growth to record levels in the REIT since 2020. Investors fear the potential recession effects will hurt industrial demand. But Prologis’ latest earnings report eased concerns as strong demand continued.
Occupancy in the second quarter of 2022 was 97.6%, and net effective rent change, or rental growth, is up more than 45% in the past year. Not to mention that the company is very well funded with more than $5.2 billion in cash and cash equivalents, which is more than enough to cover its current debt obligations, and it is expanding like crazy. It is currently in the process of being acquired Duke Realty (NYSE: DRE)a smaller but fast-growing industrial REIT, expects to spend an additional $1.2 billion to $1.7 billion in acquisitions this year.
2. Short-term headwinds but long-term opportunities
Data centers are a complex industry, but they play an increasingly important role in our technology-driven economy. Almost everything we do today, such as interacting on social platforms, online education, using cloud-based services, live broadcasting, e-commerce sales, and even augmented reality, relies on data centers to operate.
While there are many options for investing in data centers, the Digital Realty Trust is one of the few remaining data center REITs and among the largest data center operators in the world. As of the second quarter of 2022, REIT had interest and ownership in nearly 300 data center facilities that help store and aggregate digital data for more than 4,000 customers on six continents.
The REIT is down 26% from its recent highs thanks to general market volatility but also due to several short-term headwinds in the data center industry – including supply chain challenges that have made it difficult to obtain critical parts to operate and develop their centers, but also currency changes .
Its recent earnings showed very weak growth, with revenue up 1% quarter-on-quarter and 4% year-over-year, while FFO and net operating income (NOI), both important metrics for assessing a REIT’s profitability, are down from a year ago, and this Not great.
But if we think about the longer term, 10 to 15 years from now, there is no doubt that data centers will continue to see the increased demand and need for data storage space as more technology advances occur. The necessity-based role they play is why I believe data centers are one of the biggest investment opportunities in the next decade and why they’re a great buy, especially given the low stock prices today.
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Liz Bromer Smith holds positions at Digital Realty Trust, Duke Realty and Prologis. Motley Fool has and recommends positions with the Digital Realty Trust and Prologis. Motley Fool has a disclosure policy.
The opinions and opinions expressed here are those of the author and do not necessarily reflect the views and opinions of Nasdaq, Inc.