Amid the stock market’s recent carnage, TheStreet.com’s Action Alerts Plus team found a couple winners: a water utility and a data-center real estate investment trust.
The water utility is American Water Works (AWK), the largest publicly-traded one. It’s a member of the S&P 500 Dividend Aristocrats, meaning it has raised its dividend for at least 25 straight years. It recently announced a 9% dividend increase.
“Arguably, water consumption is one of the most inelastic items out there,” the AAP team says. “Over the years, the company has done a stellar job consolidating the fragmented water utility business, bringing efficiencies with it and the ability to get price relief for its regulated water business.”
This year, American Water has filed for higher rates in New Jersey, California and other states. It anticipates those approvals will help boost earnings-per-share by 7% to 9% through 2026.
And the company can grow through acquisition, the AAP team said.
Strong Data-Center Fundamentals
The data-center REIT is Digital Realty Trust (DLR). It has a forward yield of 3.7% and has been steadily increasing the payout since 2005. The company is benefiting from the buildout of cloud and data centers, the AAP team says.
There’s a “growing need for data centers, as individuals, businesses and governments continue to create, consume, and share increasingly greater amounts of content.”
IDC recently predicted the annual data creation rate will triple from 2021 to 2025. “Digital Realty has 44 projects underway in 28 metro locations around the globe, and 58% of that additional capacity is pre-sold,” the AAP team said.
“While energy costs are rising, given the nature of Digital Realty's contracts that treat those rising costs on a pass-through basis, the REIT is relatively insulated.” So Digital Realty’s earnings should continue to rise.
Morningstar’s Three REIT Choices
In other REIT news Morningstar found three REITS to recommend, despite the real estate sector’s recent slump. The total return of the FTSE Nareit All Equity REITs index slid 16.1% this year through May 9, worse than the S&P 500’s 15.9% total-return drop during that period.
Morningstar analyst Kevin Brown likes Federal Realty Investment Trust (FRT), Realty Income (O) and Ventas (VTR).
Federal Realty and Realty Income both are members of the S&P 500 Dividend Aristocrats Index. Ventas is involved with the senior housing, medical office and life science sectors. Senior housing is starting to rebound, and the other two sectors remain strong, Brown said.
The author of this story owns shares of Realty Income and Ventas
