3 main recommendations for new investors

With so many different stocks to invest in, it can be difficult to know where to start as a new investor. Growth stocks can be huge sources of long-term income, but they also come with a lot of risk.

A much safer place to start for new investors is to invest in companies with somewhat boring but reliable businesses that have a proven track record of growth and income opportunities. This is precisely what real estate investment trusts (REITs) offer.

These particular types of shares, which invest in real estate and real estate securities, offer exposure to a diversified sector while being managed by a professional team. Additionally, since REITs are required to pay out 90% of taxable income as dividends, they can be extremely reliable passive income streams.

Let’s take a look at the REITs that three Motley Fool contributors say are their top recommendations for new investors: MAA (MAA -0.41%)formerly known as Mid-America Apartment Communities; Gladstone Land (GROUND -5.66%)and American Tower (AMT -1.70%).

MAA: Stable and reliable

Kristi Waterworth (MAY): If I had only one stock to recommend to a new investor, it would be MAA. Not only has this REIT demonstrated consistent revenue growth since 2000, it has also shown consistent dividend growth since its IPO in 1994. Slow and steady may not be very sexy, but when it comes to investments, that’s the sign of a REIT you don’t. not really to worry about.

In the short term, the MAA fills a much-needed gap in housing, where an estimated shortfall of 600,000 units persists. Texas, Florida and California are particularly affected by shortages, current and projected, with these three states alone representing 40% of projected future needs (a total of 1.5 million new units by 2035), according to the National Multifamily Housing Council.

And MAA has significant holdings in Texas and Florida, which make up just over 40% of its multifamily portfolio. That’s a total of over 37,000 units in these hot spots that should only be in higher demand as time goes on. It also has units in 15 other states, as well as a 22-acre piece of land in Texas that is ripe for development.

MAA’s liabilities of just over $5 billion are offset by assets of over $11 billion, giving it plenty of room for big investments, as well as a buffer in case of a sudden upheaval in the apartment sector.

Part of what’s really fantastic about this REIT is that it doesn’t just buy apartments and rent them out, it also spends money to create value in existing acquisitions. and news. It has completed the renovation of 2,942 units so far in 2022, at a cost of $5,364 per unit, but plans to increase the effective monthly rent by $142 for each in the longer term. Even without an annual rent increase, it would only take 3.14 years for each of these units to break even on these large upgrades.

The stock has a forward yield of 3.13%. Because MAA treats its apartments as long-term assets and reinvests in units that many other owners might sell at a discount, it’s stable long-term income and inventory you should never have to worry about so much. that you hold this.

Gladstone Land: Diversification and inflation protection

Mike Price (Land of Gladstone): The key to a good investment is the ability to hold on for the long term. The internet is full of stories of investors who bought life-changing stocks and sold them on the first dive, missing out on years of strong returns.

One of the ways to improve your ability to hold for the long term is to use diversification. Investing in stocks that are uncorrelated to each other is a good way to ensure that your overall portfolio only drops in very rare cases and probably only for short periods. More often than not, one of your stocks may fall while the others, because they are affected by different economic forces, rise.

Gladstone Land is a perfect stock for diversification as a farmland REIT, and it currently has a dividend yield of 2.6%.

It owns 115,000 acres of farmland spread across 169 different farms. These farms have triple net leases, which means farmers pay rent, maintenance, property taxes and insurance.

Farmland is an attractive investment because it is generally uncorrelated to inventory. The forces that create the economic cycle do not generally apply directly to agricultural land.

It is also beneficial in times of inflation. When prices rise, food prices stay the same. Consumers can adjust their budget to stop buying other things, but they have to buy food. Gladstone takes advantage of this with planned contract escalations and equity features in its leases: if farmers make windfall profits because prices rise, Gladstone’s rents will rise.

Its history as a public company has not been as simple as the logic behind investing in farmland might suggest. The stock has gone virtually nowhere since its IPO from 2014 to 2021, when inflation fears helped it surge from around $15 a share to over $40. It has since come down to earth, along with the rest of the real estate industry, and sits at around $20 today. Investors have earned more than they would have in a savings account from dividends from 2014 to 2020, but be prepared for holding periods where the stock doesn’t do much – it will reward you in case of crisis.

American Tower: helping the world stay connected

Liz Brumer Smith (American Tower): There are many reasons why American Tower is the perfect starter stock. The company has been in business for almost three decades. It has an exceptional track record, delivering a 12% annualized return over the past 25 years, which has outperformed the S&P500. And it has increased its dividend 42 times over the past 11 years.

Its crazy success over the years is due to the business model of the company. Specializing in communications infrastructure, American Tower owns and leases more than 220,000 communications assets in 25 countries. It rents things like antennas, cell towers, and data centers from some of the biggest communications companies, like AT&T, T-Mobileand Verizon.

The communications infrastructure industry has changed tremendously over the past 30 years. The widespread adoption of cellphones, then smartphones, and now 5G has allowed the company to grow steadily. Its latest earnings report saw revenue rise 17% year-over-year, while its adjusted operating funds (AFFO), a key metric for REITs that works the same way as earnings per share, rose 7%.

But it’s not just recent performance that makes this title so appealing; In 10 to 20 years, chances are people will still be talking, texting and browsing on their cell phones or the internet. Given the essential nature of its business, its highly unlikely American tower will be rendered obsolete. She has enough cash to cover her debts and dividends, even if business suddenly slows down.

The reliability of its business model and its title as the largest REIT by market capitalization mean that the stock is trading at a slight premium, around 24 times its projected AFFO for the year 2022. Its yield is also not huge at 2.3%. But for the security it offers and the potential growth opportunities when held long-term, it’s still a fantastic starter stock.

About Elizabeth Fisk

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