Tag: <span>EQIX stock</span>

REIT Investing 101

February 22, 2024 By The Dividend Monk 2 Comments

Welcome to REIT investing 101! Andrew Carnegie is quoted as having said that “90% of Millionaires got their Wealth in Real Estate”. Funny thing though, he made his fortune as an industrialist, not in real estate. So, perhaps not the savviest man in real estate, but brilliant in business nonetheless. If one of history’s biggest industrialists had such high regard for real estate, maybe you and I should also.

But what if you don’t have enough money to invest in real estate? Or maybe you have enough, but all your money would be tied up in a single property, not diversified investments? That’s when Real Estate Investment Trusts (REITs) come in handy!

REITs are investment vehicles that were created for anyone to invest in Real Estate without the hassle of managing properties. REITs are accessible to the average investor regardless of the amount of money they can invest. Just as any other publicly traded company, you can start investing as long as you can afford one share (usually not more than $500). We’d like to share with you a REIT 101 intro, the main metrics you want to look at, and then introduce some REITs we like and explain why we like them.

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REITs 101

REITs are companies that own and manage real estate and receive rental income from those properties. While most REITs are equity REITs, meaning that they own and operate real estate properties, some REITs specialize in investing in mortgages and mortgage-backed securities. The latter are called mortgage REITs, or mREITs for short. Hybrid REITs invest in both equity and debt. In this post, we focus solely on equity REITs.

To qualify as REITs for tax purposes, the company must receive at least 75% of its income through rent or sales of properties. REITs must also pay a minimum of 90% of their taxable income in dividend each year, something that makes them very attractive to dividend investors. REITs are categorized by the industry in which they are specialized:

Diversified	Mortgage	Specialty
Healthcare	Office	Developer
Hotel	Residential	Diversified
Industrial	Retail	RE Services

REIT Financial Metrics

While REITs can add a lot of value to an income-seeking investor portfolio, it’s important to understand the main metrics. Real estate has its own lingo and financial metrics, and so do REITs. Below, we explain basic metrics that relate to REITs.

Funds From Operations (FFO)

FFO is probably one of the most useful metrics to use to analyze a REIT’s performance. FFO replaces what earnings is for a regular company. Because REITs can take a big accounting depreciation (real estate can depreciate heavily), FFO was created as a more objective measure of performance for a REIT. The FFO formula is:

FFO = Earnings + Depreciation (Amortization) – Proceeds from Property Sales

There is a small variation of FFO called AFFO or Adjusted FFO. AFFO simply adds back capital expenditures (CAPEX) which gives a different picture of financial performance:

AFFO = Earnings + Depreciation (Amortization) – Proceeds from Property Sales – CAPEX

You can think of FFO Per Share as the equivalent of Earnings Per Share (EPS) for other stocks.

Net Operating Income (NOI)

Another important metric for REITs is NOI. This metric takes into account the Operating Expenses (OPEX) and measures how efficiently a REIT manages its properties. A REIT with a growing NOI is probably efficient at using its properties.

NOI = Real Estate Revenue – OPEX

Net Asset Value (NAV)

NAV is another metric that is analogous to familiar metrics in other companies, specifically the Book Value; when expressed per unit, it’s equivalent to the Price-to-Book ratio.

NAV = Total Property Fair Market Value – Liabilities

Loan to Value (LTV)

The LTV ratio is a good metric to analyze the REIT’s ability to raise capital in the future. As its name implies:

LTV = Mortgage Amount / FMV (Fair market value of properties)

When searching for a good REIT in which to invest, your due diligence does not end with the review of these four metrics. Use the metrics to screen REITs and narrow down your list of candidates to those that meet your minimum criteria. Then, you must go deeper in your due diligence before pulling the trigger.

It’s time to share with you three REITs we like, and show their basics.

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Essex Property Trust (ESS)

Industry: Residential
Market Cap: $15B
Dividend Yield: 4.03%
5-year dividend growth: 4.43%

ESS is primarily engaged in the ownership, operation, management, acquisition, and development of predominantly apartment communities, located along the West Coast of the U.S. The company owns about 252 apartment communities.

ESS is everything a REIT should be: dominant in a thriving market, a decent yield, and stellar dividend growth history. Most income-seeking investors look for high-yield REITs, but those often come with marginal growth opportunities. If you’re willing to invest in a REIT with a yield of about 4%, consider ESS; your income will be safe, protected against inflation, plus you’ll likely enjoy some value appreciation over the long haul.

During the recession of 2008, ESS sustained its dividend growth while maintaining a strong FFO/share; it positioned itself to thrive once the economy was on a roll again. ESS regularly acquires apartment REITs and integrates them successfully. The forecasted decline in apartment supply in California combined with growing population point to a high demand for ESS properties. Finally, the stock price is appealing after its 2022 decline, as ESS continued to report modest growth throughout 2023, a great sign of stability.

Equinix (EQX)

Industry: Specialty
Market Cap: $80B
Dividend Yield: 1.99%
5-year dividend growth: 9.16%

Equinix is a digital infrastructure company that owns and operates data centers. Its interconnected data centers around the world allow its customers, organizations in finance, manufacturing, retail, transportation, government, healthcare, and education, to bring together and interconnect the infrastructure they need to track their digital advantage.

The beauty behind the EQIX business model is that it is both poised for strong growth and hard to replicate. EQIX excels in matching customers in the data and cloud service arenas with each other. Its cloud-based global platform, through a distributed infrastructure, is a critical source of differentiation, making EQIX the partner of choice for some of the largest technology companies. With over 10,000 customers, including 1,800 networks, EQIX is a well-diversified cash cow. The EQIX yield is low and won’t pay an investor’s bills, but its capital appreciation potential could boost a portfolio over the long haul.

VICI Properties (VICI)

Industry: Diversified
Market Cap: $31B
Dividend Yield: 5.59%
5-year dividend growth: 0%

VICI owns portfolios of gaming, hospitality, and entertainment destinations, including Caesars Palace Las Vegas, MGM Grand and the Venetian Resort Las Vegas. Its destinations are subject to long-term triple net leases, where tenants pay for for property taxes, insurance, and maintenance costs. VICI’s geographically diverse portfolio consists of 54 gaming facilities across the United States and Canada comprising approximately 124 million square feet and features approximately 60,300 hotel rooms and more than 450 restaurants, bars, nightclubs, and sportsbooks.

This REIT offers great protection against inflation as its contracts include an escalator clause where rents increase by 1.8% annually. VICI also minimizes its risk by leaving most of the expenses to its tenants. It has a unique business model among REITs since its tenants (mostly casinos) sign incredibly long contracts as they are highly dependent on their location and the size of the property to operate their business. In other words, VICI has a sticky business model.

What should I do with REITs?

REITs are a great addition to any portfolio and a great way to get exposure to real estate. This doesn’t mean they are risk free. Even though their value is tied to real property, a bad move can damage them just as companies in other sectors. Finally, it’s tempting to focus on high yield REITs, but some of those could be traps. You want to make sure your future dividend payments are safe and at least beat inflation.

To learn more about the strategies we use, download our free recession-proof portfolio workbook. It’ll give you peace of mind and guidance while building your dream portfolio!

U.S. FOREVER STOCK SELECTION

August 8, 2023 By The Dividend Monk 1 Comment

Ah, forever stocks! I love them. Here I present nine stocks I include in my U.S. forever stock selection, and briefly explain why. A forever stock is one I’d buy for the long haul, 10+ years. It offers reliable growth and is so solid and resilient that I can forget about it and sleep soundly.

Let’s be clear, my selections aren’t based on timing; I’m not saying that they are great buys right now, but rather that I’d buy any of them and, if I couldn’t monitor them quarterly as I do, I wouldn’t worry.

Sleep-well-at-night forever stocks share several of these qualities:

Diversification
Market leaders
Economies of scale
Predictable cash flow
Stable and/or sticky business model
Essential products / services
Multiple growth vectors
Long dividend growth history

This list is partial; clearly, there are other contenders that could be on it.

Procter & Gamble (PG) – Consumer Staples

Procter & Gamble has learned from its mistakes and manages one of the largest portfolios of billionaire brands. Buying PG shares is like buying an ETF of consumer staples. Its focus on brand management, keeping only the most profitable and promising brands, is a key factor in choosing PG.

PG sells everything everywhere. It comes through any recession or crisis as its economies of scale help its margins and its iconic brands remain in the minds of billions of consumers.

A great example of their brand portfolio strength was how it increased its prices over the past 18 months to fight inflation. Once again PG showed its strong pricing power and how it can maintain healthy margins.

Genuine Parts (GPC) – Consumer Discretionary

GPC’s longevity is beyond other companies in this sector, with dividend increases every year since 1957! The secret behind 66 consecutive pay raises? Repeated necessary purchases.

GPC offers a wide variety of replacement automotive and industrial parts. While Magna sells parts to auto makers, GPC helps its customers to repair what they already own. With its economies of scale, GPC has become an uncontested market leader. It’s slowly but surely adding growth via small acquisitions to ensure it remains on top. GPC is a dividend king and replacement parts king!

U.S. Forever Stock Selection: Genuine Parts Co. - Revenue, EPS, and dividend over 10 years — GPC – Longevity and impressive growth

BlackRock (BLK) – Financials

BlackRock is the world largest asset manager, with money invested in literally everything, and the largest ETF manufacturer. BLK’s business is very sticky since a lot of its revenue comes from institutional investors. BlackRock has become a must have for many investing strategies. There’s a lot of growth to grab in the wealth management market!

Patience is required with asset managers in an uncertain market. It’s all about charging fees on assets under management. When the market drops, asset managers generate less money. Also, many income-seeking investors are going back to fixed income and GICs. Let’s just say the margin is a bit less on such products than on emerging market funds!

Johnson & Johnson (JNJ) – Healthcare

JNJ is one of the first dividend growers I bought over 10 years ago. I even forget I have JNJ in my portfolio! It’s a “sleep well at night” stock. Today, JNJ shows a total return above 250%, including dividends, it’ll be in my “triple digit club” for at least another decade!

JNJ is one of the largest companies in healthcare, with strong economies of scale. It specializes in specialty drugs that are hard to replicate; its products have longevity. More income leads to more R&D investments; a virtuous circle where more money in R&D leads to a stronger pipeline, which leads to more sales. I love JNJ as a core holding!

For more great stock ideas, download our Rock Starts list, updated monthly!

A O Smith (AOS) – Industrials

Unusually, I picked a stock that I don’t own. A O Smith provides essential products like water treatment solutions. The leader in North America, AOS is expanding in the rest of the world. Robust demand for water treatment will continue to grow as water gets rarer. China, India, and other water treatment segments represent 36% of sales and the company’s fastest-growing opportunities. For investors wanting to dip their toe in water needs, AOS has a proven business model and it’s a dividend aristocrat.

Apple (AAPL) – Information Technology

Apple has a unique way to generate cash flow. It built an ecosystem of successful products that hasn’t been replicated so far. All devices communicate and connect seamlessly creating an obstacle for customers wishing to switch from iPhone to Google Pixel for example.

Apple doesn’t make products, but iconic artifacts to raving fans. AAPL doesn’t need to be the first mover to get the advantage on the market. With abundant cash flow generation, it waits, observing how a new market develops. Then, it moves into development at full strength and improves on what is already there. A great example is the Apple Watch. Where many failed, Apple built a billion-dollar business on people’s wrists!

Air Products & Chemicals (APD) – Materials

APD is the world’s largest supplier of hydrogen and helium, with facilities located on customer sites. These industrial gases aren’t a big part of their customers expenses but are crucial for their operations. This very sticky business model, where customers won’t expel APD from their operational sites, generates predictable cash flows and 40 consecutive years of dividend increases. APD’s business model is very hard to replicate, ensuring a great future.

Forever stock selection: Air Products & Chemicals Dividend Triangle showing growth in revenue, EPS and dividends — APD – Sustained growth on all fronts

I added APD to my retirement account (not displayed at DSR) earlier in 2023. It was on my wish list for a while!

Equinix (EQIX) – Real Estate

Equinix is the leader in a growing industry, data centers. Sure, you could fill an RV with servers, to create your own mobile data center. EQIX goes a lot further than that. This REIT is known for its co-location services. What does that mean? Many companies share the costs of a data center, like roommates splitting the rent.

Companies reduce their risk by dealing with EQIX. Its redundancy is far more reliable that any in-house system and provides better response times for companies who do business together and from the same data center. Its cloud-based global platform, through a distributed infrastructure, is a critical source of differentiation. With over 10,000 customers, including 1,800 networks, EQIX is a well-diversified cash cow.

EQIX is the largest REIT in this industry and is diversified across the world. The need for data centers will continue to explode in the coming years. For more about EQIX, see this recent article.

American Water Works (AWK) – Utilities

Something universal, water distribution. The investment thesis for American Water Works (AWK) is simple: an investor is buying shares of a monopoly selling an essential product with repeat purchases. As population grows, water needs increase, and the company operates a near recession-proof business. The yield (2%) and PE ratio don’t make it appealing, but if you’re looking for a safe place to park money for the 10 years, water is a pretty smart play.

BUY LIST STOCK FOR JULY 2023: EQUINIX (EQIX)

July 19, 2023 By The Dividend Monk 1 Comment

A stock on my buy list now is Equinix (EQIX). Looking for growth? This is one to keep an eye on. A fast-growing REIT trading near its all-time high, EQIX has a lot going for it. Offering a very low yield, its potential is in stock price appreciation. Equinix is the largest provider of collocated data centers in the world, a world in which demand for data continues to increase with 5G, the internet of things, and artificial intelligence.

Equinix Business Model

A digital infrastructure company, Equinix’s platform combines:

A global footprint of International Business Exchange (IBX) data centers in the Americas (AMER), Asia-Pacific (APAC), and Europe, the Middle East and Africa (EMEA) regions
Interconnection solutions
Edge services
Business and digital ecosystems
Consulting and support

Equinix’s interconnected data centers around the world allow its customers, organizations in finance, manufacturing, retail, transportation, government, healthcare, and education, to bring together and interconnect the infrastructure they need to track their digital advantage.

Equinix interconnection offerings include Equinix Fabric to connect infrastructure and services on demand at software speed through a secure, software-defined interconnection. Equinix lets businesses connect to their choice of thousands of networking, storage, computing, and application service providers in the industry’s global infrastructure ecosystem. Its Cross Connects provide a point-to-point cable link between two Equinix customers in the same data center.

Investment Thesis

The beauty behind the EQIX business model is that it is poised for strong growth that is hard to replicate. EQIX excels in matching customers in the data and cloud service arenas with each other. Its cloud-based global platform, through a distributed infrastructure, is a critical source of differentiation. It makes EQIX the partner of choice for some of the largest technology companies. With over 10,000 customers, including 1,800 networks, EQIX is a well-diversified cash cow.

The acquisition of Packet for $335M should help the deployment and delivery of its interconnected edge services. The Equinix Metal service, which allows companies to deploy the physical infrastructure of their choice at software speed across EQIX’s platform, had another strong quarter in Q1 2023 and we see continued growth in the year.

About EQIX’s Last Quarter

Equinix had a solid first quarter in 2023 with revenue up 16% and FFO per share up 34%, beating analysts’ estimates. It closed around 4,000 deals across more than 3,000 customers in the quarter, with deployments across multiple regions, showing the value of Equinix’s global platform. Equinix’s CEO reiterated the positive outlook, fueled by the overall demand for digital transformation. Equinix has invested in expanding its global platform, with 50 major builds underway in 37 markets.

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Potential Risks for Equinix

Seeing a stock trading at sky-high prices, we can’t help but think that some investors will sell their shares to cash out their gains. In early 2015, EQIX traded at $225/share. The stock broke $850 recently and is now trading in the low $800s. This can be attributed to its aggressive growth plan and increased demand for data centers.

EQIX is growing fast, but so is its debt, going from $9B to close to $13B in the last 5 years. Higher interest rates won’t help EQIX generate stronger FFO per share.

While EQIX is the largest player in this industry, the growing demand for this service hasn’t gone unnoticed. Several competitors are lining up to get their piece of the pie. Customers may soon be able to negotiate a reduced price for their data centers.

EQIX Dividend Growth Perspective

EQIX is in an unusual situation for a REIT, high growth with a strong dividend triangle. It has increased its dividend yearly since 2016, and the best part is that they have an AFFO payout ratio of approximately 60%. Shareholders should expect a steady 7-8% dividend growth rate for several years.

While the EQIX yield is low and won’t pay an investor’s bills, its capital appreciation potential could boost a portfolio over the long haul. The REIT currently offers a 1.9% yield and recently rewarded shareholders with another generous dividend increase from $3.10/share to $3.41/share (+10%).

Final Thoughts on Equinix

Equinix enjoys a strong dividend triangle showing steady growth in revenue, EPS, and dividends, albeit with a low yield. We expect EQIX’s low dividend yield to grow steadily for several years.

As a well-established leader in a field for which demand is increasing and will increase for the foreseeable future, EQIX is poised for more growth. It is paving the way by investing to expand its global platform. If you’re looking for stock price appreciation to boost your portfolio, you might want to add this one to your watch list.

EQIX stock