Index funds are not only a proven way to invest in equity markets: the indices that these funds track serve as a standard benchmark for measuring performance. Take the Dow Jones Industrial Average and the SPDR Dow Jones Industrial Average ETFfor example.
While it’s not unusual for managed funds and paid stock pickers to track the performance of passive index stocks, individual investors also have good choices among stocks with a history of outperforming these benchmarks. . The two I’m going to highlight here are both real estate investment trusts (REITs): Accept real estate (CAN 2.21%) and Blackstone Mortgage Trust (BXMT 1.43%). REITs hold pools of income-producing assets and are required to pay out at least 90% of their annual taxable income to shareholders in the form of dividends.
Agree and Blackstone are very different companies though. For starters, Agree is an equity REIT that owns real estate directly while Blackstone is a mortgage REIT (mREIT) that owns loans. But the two share this: they both vastly outperformed the Dow Jones for years.
Turning the tables with total return
For the two tables below, I used the Dow Jones Compound Average total return index, which includes the 30 stocks of the Dow Jones Industrial Average, 15 of the Dow Jones Utility Averageand the 20 shares of Dow Jones Transportation Average. I chose total return as my barometer because the combination of dividend payout and stock price shows the true impact of owning a stock, an essential metric if you, like me, are interested in income. liabilities as an investment strategy.
Let’s first look at year-to-date total returns. While Blackstone’s mREIT is down around 6.3%, it’s not as much as the Dow Jones’ 15.7% drop. Agree’s performance is even more pleasing, with a full return to the green, a real rarity in these choppy times.
The following chart shows the 10-year total returns, moving away from the current downturn, putting the most recent price declines into perspective, and highlighting the track record of outperformance for both REITs. This time frame is essential to keep in mind, especially if you are someone who favors stocks that you can comfortably buy and hold for the long term.
Agree Realty continues to grow its payments and portfolio
Agree Realty is a Detroit-based, family-founded and -operated retail REIT that owns more than 1,500 shopping centers across the country and has generated an average compound annual return of approximately 12.5% since its IPO in 1994. The company also started paying monthly instead of quarterly in January 2021 and has increased its dividend four times since then, giving it a current yield of around 4%, compared to around 1.9% for the Dow Jones.
Agree’s funds from core operations (FFO), a critical measure of how a REIT manages its cash, grew about 11% in 2021 and then 15.5% year over year. another in Q1 22. That, plus a portfolio that grew by 124 properties in the first three months of the year, indicates more revenue and more profits to share with investors in the months and years ahead.
Blackstone Mortgage Trust is well positioned to benefit from rate hikes
Most MREITs make their money by buying pools of mortgages, especially residential mortgages through government-sponsored agencies like Fannie Mae and Freddie Mac. Blackstone Mortgage Trust, on the other hand, is more of a direct lender, offering senior loans secured by commercial real estate on three continents. It is also part of black stone (NYSE: BX), sharing the resources of one of the world’s largest asset managers.
Blackstone’s mREIT has been a consistent performer. Although it hasn’t increased its dividend since 2015, the payout is still good, cashing in on a current yield of around 8.5% with a share price of around $29. That’s an inflation-beating return, and it’s not the only inflation-fighting attribute of this portfolio. While most other MREITs are dealing with the effects of rising interest rates on fixed rate mortgages, New York-based BXMT has a 99% floating rate portfolio, meaning it can follow the rising tide of interest rates.
CEO Katie Keenan noted this benefit in BXMT’s April quarterly report: “Looking forward, we believe our portfolio of low-leverage, floating-rate bridging loans is uniquely positioned for the future. current environment, with our earnings expected to benefit from the move in interest rates higher.”
Different Ways to Beat the Dow Jones While Paying Dividends to Shareholders
Granted Realty and Blackstone Mortgage Trust are very different organizationally and structurally, but both have outperformed major indices like the Dow Jones and have the portfolios and potential to continue to do the same in the future.