Remember being a kid back in the day?
If you’re anything like me, you’ve got some good memories about that period of your life. There was riding bikes around the block with your friends, running through the lawn sprinkler during hot summer days, coming up with crazy adventures to play out in your backyard…
And so much more.
Depending on the era you grew up in, your parents might have let you have an hour or two of Sega on the weekends or given you loose change to take to the local ice cream shop for a double scoop cone.
Those were the good ‘ol days to be sure.
This isn’t to say they were perfect, however. Please don’t misunderstand me on this one. Life wasn’t all puppies and play, you see. There were issues too.
Issue like having to get up and go to school every weekday during the school year. That alarm was relentless! As was your mom.
How about the fight you got into with your best friend in third grade over whether or not school buses were orange or yellow? (Which, for the record, they’re obviously orange.) The two of you didn’t speak to each other for three whole hours after that.
It was an intense time, to say the least.
And that was hardly half of it. Because, as if alarm clocks and best-friend drama weren’t enough, you might very well have had to participate in stuff like Easter egg hunts during the year.
In which case, talk about pressure! Could anything else compare?
At the time and in the moment, the answer was a big, fat no.
A Really Big Yard to Hunt Through
Contrary to popular adult opinion, Easter egg hunts are a big deal. Any kind of scavenger hunt is, for that matter.
There’s a lot at stake with those things, no matter whether a kid has an overreaching A-type personality or not. Not everyone may feel an all-consuming urge to find the most the fastest. But you’d better believe that nobody wants to come in last place.
No matter whether adults are keeping score or not with such things, children always know. It’s the burden of being a kid.
Then again, what kids don’t realize at the time is that those burdens don’t go away once they grow up. They just get bigger, with more at stake.
As adults, we no longer have to worry about the momentary – and, let’s face it, inconsequential – emotions involved in finding or not finding a bunch of painted eggs. The baskets we’re looking to fill post-adolescence carry a lot more weight to them in almost every sense of the word.
Making things that much more complicated, convoluted and downright crazy, our search isn’t limited to a mere yard or two that contains a few dozen eggs. Whether we recognized it or not as a kid, a single yard provides for a pretty manageable number of possibilities within a pretty manageable amount of space.
Not so much in the adult world of investing. That basket-carrying nest-egg hunt covers a vast array of possibilities.
To illustrate this, consider the New York Stock Exchange, or NYSE. It alone catalogues more than 1,900 investment possibilities.
How long do you think it would take to properly search through that list, turning each “egg” over to inspect it for flaws before you add it to your collection?
I’m going with “a while.” How about you? Do you want to take the under or the over?
More Pressure Still
Don’t for one minute think I’m being ethnocentric by only mentioning the NYSE. While it’s the largest stock exchange in the world, as we all know, it’s hardly the only one out there.
In just the North American “yard” alone, there’s also Canada’s sizable Toronto Stock Exchange to consider. And by “sizable,” I mean more than 1,600 companies listed.
Or we could skip over a continent or two, where we’ve got:
- Asian versions such as the Tokyo Stock Exchange in Japan, the Bombay Stock Exchange in India and the Hong Kong Stock Exchange in China.
- African stock exchanges such as the Johannesburg Stock Exchange in South Africa, the Nigerian Stock Exchange, the Egyptian Stock Exchange, the Casablanca Stock Exchange in Morocco and the Namibian Stock Exchange.
- European versions such as the Euronext, which spans stocks in Belgium, France, Ireland, the Netherlands and Portugal.
Moreover, that’s the short list. Taking a closer look at Europe, for instance, we’ll find more than 40 countries that sport their own separate exchanges. Some have more than one.
While there’s some crossover between such global stock lists, with ADRs and the like available in certain situations, it’s not nearly enough to make the massive egg hunt any less daunting.
So what’s an investor to do?
Some Really Good Eggs
I can hardly sort through every single stock possibility on every single exchange for you. But I can give you some helpful hints about what to look for, where and why in one particular backyard.
I’m talking about real estate investment trusts, or REITs. Of course…
Tanger Outlets (SKT) is the only “pure-play” outlet center REIT and we consider this strong buy pick a compelling play for the value-oriented shopper. While there’s little doubt that the mall sector is facing headwinds, SKT is in excellent shape to weather the storms because of its sector-leading payout ratio (~60% based on FFO). In addition the company recently sold four “non-core” assets for $131 million, resulting in a gain of approximately $44 million. This helps position the company by reducing debt and possibly buying back common shares with the proceeds. At $20 per share, Tanger can repurchase 6.55 million shares decreasing its dividend liability by $9.2 million annually and reducing shares outstanding by 7.0%.
If it weren’t for Tanger’s management team we would likely be less bullish. However, the discipline is what sets this REIT apart from the competition. Over the years – through good times and bad – Tanger has paid and increased its dividend, and we believe that’s a testament to the strict discipline of management. We are maintaining a STRONG BUY in anticipation that eventually the market will recognize the company for its sustainable sources of revenue.
Source: FAST Graphs
Iron Mountain (IRM) is an interesting REIT that walks the line between industrial and data centers. Storage remains Iron Mountain’s core business (62% of revenue) and service represents 38% of revenue. Iron Mountain’s well-balanced platform consists of more than 225,000 organizations around the world, with more than 85 million square feet of real estate and more than 1,400 facilities in over 50 countries.
Iron Mountain recently expanded its data center footprint globally via IO, Credit Suisse, and EvoSwitch acquisitions. The Q4 2018 performance was strong, with full-year revenue of nearly $230 million and adjusted EBITDA of a $100 million. Iron Mountain continues to see solid leasing momentum as it closed out Q4-18 achieving its targeted 10 megawatts of new and expansion leasing for the year, consisting of 261 leases signed with strength in the financial services, professional services and federal vertical clients.
The company also has seen strong dividend growth, averaging more than 7% over the past three years. Despite slightly slower projected dividend growth forecasted in 2019, we expect Iron Mountain to generate low double-digit returns in 2019 and are maintaining a BUY.
Source: FAST Graphs
CyrusOne (CONE) is a high-conviction data center REIT pick due in large part to the potential value of the company in years to come. Shares have underperformed the peers overall in 2019, returning 6.88% compared to 24.21% for the sector overall. To help generate growth in 2019 CyrusOne expects to invest $400 million of the capex budget into EU and U.K. projects, helping the company to become more competitive with other powerhouse data players, such as Digital Realty (DLR) and Equinix (EQIX).
CONE has proven its ability to deliver strong dividend growth over the past three years (2016 +26%, 2017 +13%, 2018 +10%) and is positioned to provide some of the strongest growth in the REIT space over the next few years . We are maintaining a STRONG BUY on CONE as it trades at $56.52 with a dividend yield of 3.3%.
Source: FAST Graphs
Stay tuned for my next “Lessons Learned” article on Diversification.
Author’s note: Brad Thomas is a Wall Street writer, and that means he’s not always right with his predictions or recommendations. Since that also applies to his grammar, please excuse any typos you may find. Also, this article is free, and the sole purpose for writing it is to assist with research, while also providing a forum for second-level thinking.
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Disclosure: I am/we are long SKT, CONE, IRM. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.