Given that I’m an investor in my early 40s, many people are surprised to see a relatively high concentration of real estate investment trusts, or REIT, in my portfolio. After all, many view REITs as boring income investments.
However, REITs are not only great income stocks, they can also have considerable upside potential over the long term. Through intelligent capital allocation, many REITs have done an excellent job of creating shareholder value over time and have produced market-beating long-term total returns.
This This is why I own REITs while I’m still 20+ years from retirement. My goal is to use these stocks to build up my portfolio over the next two decades, reinvesting all my dividends along the way, so that they can produce excellent sources of income after I retire.
With that in mind, here are two REITs in particular that could be smart additions to a long-term portfolio right now.
This “casino REIT” has enormous growth potential
Vici Properties (NYSE:VICI) is best known as a gaming REIT, and for good reason. It was born from a spin-off of some of the Caesars EntertainmentIt is (NASDAQ:CZR) real estate assets and has since acquired its largest competitor and several other impressive gaming assets. It owns many of the most iconic properties on the Las Vegas Strip and many of the best regional gaming real estate in the United States.
However, this might just be a starting point, since Vici has recently started to branch out into other types of entertainment and leisure properties. It acquired a portfolio of Bowlero entertainment centers and recently agreed to finance the construction of a new Margaritaville Resort.
The key points regarding these types of properties (especially casinos) are that tenants tend to sign long leases provide for annual rent increases and vacant units are quite rare. Vici currently has a dividend yield of 5.8% which is well covered by its earnings, and already has a strong track record of increasing its dividend over time.
A revenue machine with a proven track record
REP Properties (NYSE:EPR) is another REIT specializing in experiential properties. It has a portfolio of theaters, water parks, ski resorts, entertainment properties and much more. While the headwinds of the pandemic caused turbulence in the cinemas’ portfolio (notably the bankruptcy of its second tenant), the situation resolved favorably for EPR, and activity is running at full capacity.
Like Vici, EPR tenants generally sign long-term leases providing for an increase in rents. It aims to reduce its theater exposure over time and grow the other areas of its portfolio, and it already has relationships with excellent tenants including TopGolf and Resorts in Vail (NYSE:MTN)just to name a few.
In fact, EPR recently increased its dividend and has an attractive yield of 8.1% at the current price. And not only does it generate enough cash flow to cover the dividend, but EPR actually has one of the lowest REIT payout ratios…
