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A dividend monopoly of the REIT

Everyone (or almost everyone) knows about Hasbro's classic Monopoly board game.

This is the one where you try to have as many properties as you can to blame your opponents for bankruptcy. There was even some personal satisfaction in having left, frustrated by the time it could last.

Which could. Again and again.

Nevertheless, I loved this game so much.

And yes, I have won a lot.

It was such a fun challenge to browse the chart, to analyze your backgrounds with every move made. In the beginning, everything was focused on selecting the best properties to buy: Vermont Avenue, St. James Place, Marvin Gardens, Park Place and Boardwalk … not to mention public services and railways.

There was so much to do in these first circuits.

Once all properties were purchased, the question was who would trade with whom. Could you induce any of your friends to conclude a commercial transaction in which you will get the card you wanted and a card they wanted?

It was always worth it. In this way, you can charge an additional rent each time they arrive directly on your property.

Oh, the rent you could charge! And, in most cases, you could even build houses or, better yet, hotels on these assets, charging even more for the hassle.

But perhaps even better, no law has been broken, jobs have been lost or laws have been passed. Oh, there may have been some resentment along the way. But even these have been short-lived: the mere product of a momentary painful loser.

In the end, it was really fun and games.

Unlike the concept on which it is based, of course. Now, it's not such a carefree subject.

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The definition of a monopoly

Ask most people today, and they will tell you bluntly that monopolies are bad. And, given what we learn in our history books as we grow up … not to mention the social media craze currently prevailing … we have good reason to say so.

A monopoly – any monopoly outside Hasbro, anyway – can have very undesirable consequences, at least for consumers, if not for the big economy. This is because, in its purest form, it means that a company or an individual has every aspect of something, usually an industry.

This may seem like the complete Christmas list of every business, but many governments have decided that it was an economic nightmare. As such, they prohibit the practice from becoming too big. (At least in theory.)

In the United States, for example, the Sherman Act of 1890 introduced a series of federal anti-trust rules designed to prohibit these entities from forming … the reason being that the more companies there are by sector, the more the prices will be. equitable and balanced. given sector.

In many cases, it is certain that these acts worked exactly as intended, protecting consumers from wolves dressed in corporate clothing. In other cases, things are not going so well.

Indeed, this solution of having human beings (that is, business owners) affecting human beings (ie, consumers) to such an economic degree places always human beings (ie public servants) before human beings (ie business owners) to an economic degree. Therefore, it is still possible that corruption or less intentional flaws come into play.

I guess there is no perfect solution to the question. However, when it comes to building an extremely well protected and protected portfolio, I can do my best to get you closer.

By this I mean a set of stocks with the best track record of dividend growth.

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As good as landing on a free car park

As stellar as these stocks are, I should probably begin with a warning that reflects my previous comments.

I do not necessarily recommend that you buy them all for a complete "monopoly" in the matter. As always, I do not know your personal investment situation and I am not your financial advisor. I am an analyst who can only evaluate general or market-related situations and then give my honest opinion about it.

In the end, you will have to choose yourself one way or another.

However, the following list is an excellent choice. If I say it myself.

If it was the Monopoly game, we would be talking about Park Place and Boardwalk – and all the orange properties that everyone seems to have landed instead of Free Parking.

Who knows? It might even be worth getting out of jail without a card or two, thanks to Chance and Community Chest batteries.

Do not you like this game?

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Deposit your money and take your card

In the REIT sector in the United States, the board of directors is much larger than the Monopoly game, the sector has its own ranking (according to the GICS) and a company value of more than 2 trillions of dollars. Nowadays, one can invest in almost all categories of goods imaginable:

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Source: iREIT

The good thing about the REIT version of Monopoly is that the player (or investor) can choose one of his holdings by carefully analyzing the activities that generate the best growth. And in order to select the best producers, we decided to select (from the REIT Smart Lab) the optimal REITs based on their historical, current and future growth prospects. We ranked the top 20 below:

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Source: iREIT

Note: We have filtered the cash flow from operations per unit on average over three years (2019-2021) and the dividend compared to three years of historical growth (2016-2019). We then took the companies that were in the top 20 for both categories.

Now, having looked at these 20 real estate investment companies, we want to make sure their dividend is safe, so we take into account their payout ratio and the strength of their balance sheet (using S & P ratings). Here are the top 20 companies:

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Source: iREIT

Note: Investment Grade (S & P) rated REITs are highlighted in light green.

Now let's take a closer look at the valuation, knowing that the real way to generate wealth is to make sure we buy companies that trade with a large margin of safety.

So, to sort the value, look for these REITs based on (1) their variance in price and fair value, (2) historical P / FFO versus normal P / FFO and (3) ) dividend yield relative to their peers. group. Let's start by looking at the list of 20 REITs based on "our" margin of safety (price and fair value estimated by the author).

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Source: iREIT

You can see here that a lot of REITs are expensive, according to our estimates, so to continue the filtering process, I decided to filter only REITs that are trading at attractive valuation levels. This reduced the list of possibilities from 20 to six.

Source: iREIT

As you can see (above), these six REITs are imaginable candidates based on their quality and valuation parameters: Ryman Hospitality (HPR), CyrusOne (CONE), Digital real estate (DLR) VICI (OTC: VICI), Simon Property Group (SPG) and Iron Mountain (MRI).

One last thing I wanted to do is compare the dividend yield with the peer group. This also provides us with some evidence that the shares can be purchased with a definitive margin of safety.

Source: iREIT

It is important to recognize that performance alone should not be a means of evaluating an REIT. As noted above, these REITs have increased dividend growth potential, which means that companies like RHP and CONE have lower distribution rates (RHP is 54% and CONE 56%) so they can easily increase their payments to make returns more attractive.

MRI does not have a direct peer group either, so we use industry peers as this is the closest real estate sector to analyze (we recently wrote an article on the market that provides IRM with a secret tool that could generate a lot of value).

In conclusion, after carefully analyzing more than 150 REITs in our iREIT laboratory (found on our Market Ratings Tracking Tool), we conclude that the best REITs to buy based on our tactical filtering process are (by order of with the largest discounts) Iron Mountain, Simon Property, Gaming Vici, Ryman Hospitality, CyrusOne and Digital Realty (we recommend waiting for a withdrawal for DLR).

When I was a kid, I had always won playing Monopoly and now I'm giving you some of my secrets to help you win big. And by that, I am not suggesting that you "bet the farm" on a single REIT and claim that it is your allocation in real estate.

The game is about finding the right balance between research, capital allocation and happiness. The last – happiness – is important and I hope you find my articles useful and productive. And to continue spreading love (happiness), I plan to start a new series on Seeking Alpha entitled "Monthly purchase of Monopoly Man FPI."

The goal is to help you, so I will do all the heavy work and let you know that you can buy Boardwalk for the price of Baltic Avenue (market members get their pick 48 hours in advance). So ladies and gentlemen, I have to ask you one thing … are you ready to roll the dice?

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Note from the author: Brad Thomas is a Wall Street writer and that means he's not always right with his predictions or his recommendations. Since this also applies to his grammar, please excuse any typos that you may find. In addition, this article is free and its sole purpose is to facilitate research, while providing a forum for second-level thinking.

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Disclosure: I am / we are long CONE, DLR, MRI, RHP, SPG, VICI. I have written this article myself and it expresses my own opinions. I do not receive compensation for this (other than Seeking Alpha). I do not have any business relationship with a company whose shares are mentioned in this article.

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