Insights

2 Dividend Warrior Stocks That Can Turn Sitting Cash into Growing Wealth

Some investors may be hesitant to put cash to work in this volatile equity market environment. After all, the S&P 500 index has tumbled 19% year-to-date.
But with the inflation rate surging 8.3% higher year-over-year in April 2022, I would argue that keeping cash in a bank account paying almost no interest is even riskier. Nobody knows if the market is almost done falling. But letting your cash sit idle is a surefire way to lose purchasing power.
Here’s why American Tower (NYSE: AMT) and STORE Capital (NYSE: STOR) are two real estate investment trusts (REITs) that are consistently growing 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 U.S. and 24 other countries make it possible for telecoms like Verizon Communications (NYSE: VZ) to 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. U.S. tenants typically agree to contracts with 3% annual lease escalators, whereas international tenants usually have contracts that are linked to local inflation indices. This provides American Tower with dependable and growing rent revenue right off the bat.
With a $108.6 billion market capitalization, few will benefit more from the growing mobile data demand than American Tower. Smartphone mobile data subscription plans are becoming more common around the world with each passing year. In 2021, it was estimated that there were 6.3 billion smartphone mobile data subscriptions around the world. And population growth and economic growth are expected to push that figure up to 7.7 billion by 2027.
The law of large numbers will make it difficult for American Tower to match its 13.8% annual adjusted funds from operations (AFFO) per share growth posted from 2011 to 2021. But the healthy growth forecast for smartphone mobile data subscriptions should translate into a need for more communications sites.
And with a 52.1% dividend payout ratio in 2021, the company looks like it is retaining enough capital to meet the growing demand for its communications sites. This is why I expect low-double-digit annual dividend growth to continue for at least the next few years, before dropping to a high-single-digit clip. Paired with American Tower’s 2.4% dividend yield, this is a good mix of income and growth potential.
Best of all, investors can pick up shares at a reasonable forward price-to-AFFO-per-share ratio of 23.7 at the current $238 share price. This makes American Tower a great buying opportunity for the investor seeking 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 (NYSE: BRK.A)(NYSE: BRK.B) 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 releasing them back to those tenants has paid off for STORE Capital.
In exchange for providing tenants with capital for their real estate — which funds expansions, and can help repay debt — STORE Capital’s weighted average lease term is 13.3 years. And the company’s $11.2 billion real estate portfolio of properties in all U.S. states besides Hawaii comes with a weighted average annual lease escalation of 1.8%.
These characteristics have allowed STORE Capital to generate 5.7% annual AFFO per share growth throughout its history as a public company. And with a 69% dividend payout ratio, STORE Capital retains enough capital to fund acquisitions to build on its presence in the commercial real estate market, which is worth an estimated $3.9 trillion. This makes its market-crushing 5.9% dividend yield safe.
The cherry on top is that investors can buy the stock at a forward price-to-AFFO-per-share ratio of just 11.7 at the current $26 share price.
Kody Kester has positions in American Tower, STORE Capital, and Verizon Communications. The Motley Fool has positions in and recommends American Tower, Berkshire Hathaway (B shares), and STORE Capital. The Motley Fool recommends Verizon Communications and recommends the following options: long January 2023 $200 calls on Berkshire Hathaway (B shares), short January 2023 $200 puts on Berkshire Hathaway (B shares), and short January 2023 $265 calls on Berkshire Hathaway (B shares). The Motley Fool has a disclosure policy. –

Some investors may be hesitant to put cash to work in this volatile equity market environment. After all, the S&P 500 index has tumbled 19% year-to-date.

But with the inflation rate surging 8.3% higher year-over-year in April 2022, I would argue that keeping cash in a bank account paying almost no interest is even riskier. Nobody knows if the market is almost done falling. But letting your cash sit idle is a surefire way to lose purchasing power.

Here’s why American Tower (NYSE: AMT) and STORE Capital (NYSE: STOR) are two real estate investment trusts (REITs) that are consistently growing 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 U.S. and 24 other countries make it possible for telecoms like Verizon Communications (NYSE: VZ) to 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. U.S. tenants typically agree to contracts with 3% annual lease escalators, whereas international tenants usually have contracts that are linked to local inflation indices. This provides American Tower with dependable and growing rent revenue right off the bat.

With a $108.6 billion market capitalization, few will benefit more from the growing mobile data demand than American Tower. Smartphone mobile data subscription plans are becoming more common around the world with each passing year. In 2021, it was estimated that there were 6.3 billion smartphone mobile data subscriptions around the world. And population growth and economic growth are expected to push that figure up to 7.7 billion by 2027.

The law of large numbers will make it difficult for American Tower to match its 13.8% annual adjusted funds from operations (AFFO) per share growth posted from 2011 to 2021. But the healthy growth forecast for smartphone mobile data subscriptions should translate into a need for more communications sites.

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

Best of all, investors can pick up shares at a reasonable forward price-to-AFFO-per-share ratio of 23.7 at the current $238 share price. This makes American Tower a great buying opportunity for the investor seeking 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 (NYSE: BRK.A)(NYSE: BRK.B) 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 releasing them back to those tenants has paid off for STORE Capital.

In exchange for providing tenants with capital for their real estate — which funds expansions, and can help repay debt — STORE Capital’s weighted average lease term is 13.3 years. And the company’s $11.2 billion real estate portfolio of properties in all U.S. states besides Hawaii comes with a weighted average annual lease escalation of 1.8%.

These characteristics have allowed STORE Capital to generate 5.7% annual AFFO per share growth throughout its history as a public company. And with a 69% dividend payout ratio, STORE Capital retains enough capital to fund acquisitions to build on its presence in the commercial real estate market, which is worth an estimated $3.9 trillion. This makes its market-crushing 5.9% dividend yield safe.

The cherry on top is that investors can buy the stock at a forward price-to-AFFO-per-share ratio of just 11.7 at the current $26 share price.

Kody Kester has positions in American Tower, STORE Capital, and Verizon Communications. The Motley Fool has positions in and recommends American Tower, Berkshire Hathaway (B shares), and STORE Capital. The Motley Fool recommends Verizon Communications and recommends the following options: long January 2023 $200 calls on Berkshire Hathaway (B shares), short January 2023 $200 puts on Berkshire Hathaway (B shares), and short January 2023 $265 calls on Berkshire Hathaway (B shares). The Motley Fool has a disclosure policy.

Trade The World Anywhere & Anytime!

Mobile app platform with over 50,000 global listed securities across 12 markets (over 70% global market capitalisation), right from your Android or iOS device.

Integrated with exclusive trading idea and investment analysis tools to help you find actionable insight on virtually every financial instrument across our 12 global markets, to help you optimise your trading strategies.

Refer Your Friends

Tell your friends about Monex and gift them FREE access to our trading tools.

  • This field is for validation purposes and should be left unchanged.

We respect your privacy and will only send this one email notification to your friends. 

Share With Your Friends

Monex Trading Tools Access and Usage Terms

The Monex Trading Tools (referred to as ‘tools’ hereafter) are available to you inside your client portal;

To activate access to the tools, you must have a verified and approved trading account and have made a deposit of at least AUD $1000.

An active and funded account with a positive trading balance is required to continue to have access to the tools;

Although the tools are available to you, Monex Securities may at it’s discretion disable access to the tools in the future;

Monex Securities reserves the right to change these terms and conditions from time to time, as it sees fit, without notice.

FREE AAPL, TSLA, AMZN, PFE or MRO Share(s)
REGISTER TO BE ELIGIBLE FOR FREE SHARES
TRAVEL ACROSS THE FINANCIAL WORLD
Act Fast - Promotion Ends In
Click Here To Get Started
FREE AAPL, TSLA, AMZN, PFE or MRO Share(s)
REGISTER TO BE ELIGIBLE FOR FREE SHARES
TRAVEL ACROSS THE FINANCIAL WORLD
Act Fast - Promotion Ends In
Click Here For More Info