Brad’s Note: We are well on our way to the New Year. While the rest of the country slows down, the Wide Moat Research team continues to look for excellent values for 2023. Today, that responsibility goes to Stephen Hester.
He’s one of our top analysts. Together, we co-manage the recently launched Intelligent Options Advisor.
Stephen’s worked as Director of due diligence at multiple $100 billion firms.
His expertise in income and alternative investments make him the perfect addition to our team here at Intelligent Income Daily.
Here’s Stephen…
We’ve all been told the stock market protects and grows your money, at least over the long term. But what happens when it doesn’t?
The Consumer Price Index (CPI) is still near 35-year highs. There is no indication the Federal Reserve is dialing down the rate hike machine anytime soon.
Supply chain issues, war in Europe, and reckless government spending have slowed economic growth. Personal portfolios and retirement plans are feeling the pain.
It’s times like these when you need “alternative” investments and strategies.
But all is not lost. At Intelligent Income Daily, it’s our goal to find the best income opportunities no matter what’s going on in the markets. The more volatility, the better deals we tend to find. That way, you can safely and reliably grow your wealth, regardless of market conditions.
And now, I will tell you about a great value in these challenging markets.
How It All Started
For centuries, the wealthy, elite, and Wall Street investment firms have turned to top-quality commercial real estate to generate outsized returns.
That’s only natural. According to Forbes (and plenty of others), it builds wealth more consistently than any other asset class.
So in 1960, Congress created a new sector in the market to help individual investors – like us – accomplish the same thing from real estate.
If you’ve been following us, you’ll know I’m talking about real estate investment trusts (REITs).
REITs are real estate investments without the pain of expensive broker commissions, late night calls from tenants, or being a plumber on the weekends.
But many investors still aren’t aware how profitable and diverse REIT investments can be…
Up until 2016, REITs were tucked away in the financial sector, and only industry insiders knew much about them. After earning their own sector classification by the same S&P that manages the S&P 500, they’ve gotten more popular.
Back in 2000, most REITs owned office, residential, and retail properties. Think corporate headquarters, apartment buildings, and outlet malls.
But by May 2022, the sector evolved to include billions of data centers, self-storage facilities, and distribution centers. Even cannabis REITs are part of the club.
Odds are the email provider you’re using at this very moment stores its information with a data center REIT like Iron Mountain (IRM) or Digital Realty Trust (DLR). REITs are all around us, even if most don’t know it.
See, that’s the beauty of REITs – real estate evolves with the rest of the economy. And thanks to their expansion and diversification, REITs are positioned at the heart of it all.
Our REIT Strategy
Along with adaptation to changing times, REITs also provide insurance. They’ve been a proven hedge against inflation. And there’s a simple reason why…
The rent REITs charge to tenants consistently beats inflation. Those growing rents translate to growing dividends to REIT investors.
According to Cushman & Wakefield, REITs see a 1.1% increase in total returns for every 1% increase in inflation. And when inflation is near 10%, that adds up.
According to the National Association of REITs, REIT dividends alone have outpaced inflation based on the Consumer Price Index (CPI) in all but two of the last 20 years – a 90% win rate. Plus, REITs outperformed the S&P 500 over the past 25 years. That’s a powerful combination.
So they don’t just survive when inflation hits – they thrive.
Wide Moat Research specializes in the nuts and bolts of each property type. We use that knowledge and our market experience to find the best opportunities.
Thanks to their diversification and durable dividends, we can pick and choose the best REITs for various market conditions.
For example, we limited exposure to the retail and hotel sectors going into the pandemic. Instead, we doubled down on data centers, self-storage, and industrial REIT property sectors.
And that proved to be a great decision. Self-storage alone outperformed the Russell 100 by 164% since the start of the pandemic through the end of Q2 2022.
We believe this deep understanding of each type of REIT is critical to navigating and profiting from the next crisis.
Right now, the Vanguard Real Estate ETF (VNQ) is a good way to own a basket of REITs. Its 3.62% dividend yield is in another league compared to the S&P 500’s 1.56% as of the time of writing this. We expect significant upside as the market stabilizes relative to other sectors. Make sure to do your own research before taking any action.
But as mentioned above, there are individual REITs primed to outperform. That’s regardless of whether today’s inflation-fueled recession is mild or severe.
If you’re interested in receiving our top REIT picks and research, check out the Intelligent Income Investor by clicking here.
Happy investing,
Stephen Hester
Analyst, Intelligent Income Daily