2 Dividend Stocks That Can Turn Money Into Growing Wealth

Some investors may be hesitant to invest cash in this volatile stock market environment. After all, the S&P500 the index has fallen 19% since the start of the year.

But with the inflation rate up 8.3% year-over-year in April 2022, I’d say it’s even more risky to keep money in a bank account paying almost no interest. Nobody knows if the market is almost done falling. But leaving your money idle is a surefire way to lose purchasing power.

here’s why American Tower (AMT 4.73%) and STORE Capital (STOCK 0.27%) are two real estate investment trusts (REITs) that are growing steadily and appear to be attractively valued for long-term investors.

Image source: Getty Images.

1. American Tower

American Tower is a communications REIT whose 221,000 communications sites in the United States and 24 other countries enable telecoms like Verizon Communications (VZ 0.88%) provide mobile data to customers.

In exchange for leasing American Tower’s infrastructure, its tenants agree to an initial non-cancellable lease term of five to 10 years. US tenants generally accept contracts with annual rental indexations of 3%, while international tenants generally have contracts linked to local inflation indices. This provides American Tower with reliable and growing rental revenue from the outset.

With a market capitalization of $108.6 billion, few will benefit more from the growing demand for mobile data than American Tower. Smartphone mobile data subscription plans are becoming more and more common in the world year by year. In 2021, there were an estimated 6.3 billion mobile data subscriptions for smartphones worldwide. And population growth and economic growth are expected to push that figure to 7.7 billion by 2027.

The law of large numbers will make it difficult for American Tower to match its 13.8% annual growth in adjusted operating funds (AFFO) per recorded share from 2011 to 2021. But the healthy growth projected for mobile data subscriptions on smartphone should result in a need for multiple communication sites.

And with a dividend payout ratio of 52.1% in 2021, the company appears to be retaining enough capital to meet growing demand for its communication sites. That’s why I expect double-digit annual dividend growth to continue for at least the next few years, before dropping to high single digits. Coupled with American Tower’s 2.4% dividend yield, this is a good mix of income and growth potential.

Even better, investors can buy shares at a reasonable forward price ratio on AFFO per share of 23.7 at the current share price of $238. This makes American Tower an excellent buying opportunity for the investor looking for a fast-growing REIT for their portfolio.

2. STORE CAPITAL

STORE Capital carries with it the distinction of being the only REIT in which Berkshire Hathaway (BRK.A 0.10%)(BRK.B -0.03%) own a stake. Berkshire Hathaway’s 5.3% stake in STORE Capital is valued at nearly $400 million.

The company’s business model of buying single-tenant properties from its tenants and returning them to those tenants has paid off for STORE Capital.

In return for providing tenants with capital for their real estate — which funds expansions and can help pay down debt — STORE Capital’s weighted average lease term is 13.3 years. And the company’s $11.2 billion real estate portfolio in every US state except Hawaii comes with a weighted average annual lease increase of 1.8%.

These characteristics have enabled STORE Capital to generate annual AFFO growth per share of 5.7% throughout its history as a public company. And with a dividend payout ratio of 69%, STORE Capital retains enough capital to fund acquisitions to bolster its presence in the estimated $3.9 trillion commercial real estate market. That makes its market-crushing 5.9% dividend yield secure.

The icing on the cake is that investors can buy the stock at a forward price/AFFO per share ratio of just 11.7 at the current share price of $26.

About Warren Dockery

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