Patience can be a virtue. Thanks to the wonders of compound interest, anyone can turn a relatively small investment into a million dollar nest egg over time. For example, investing $300 a month in stocks with an average annual return of 10% would grow to $1 million in about 35 years.
You can potentially become a millionaire faster by investing more money or making a higher return investment. Real estate is a sector that has always generated high returns. Although they are best known for their ability to produce passive incomereal estate investment trusts (REITs) have generated total annualized returns of 11.6% over the past 20 years. At this rate, REITs can grow a monthly investment from $300 to $1 million in about 31 years. Here are a few REITs that could help their investors become millionaires in the decades to come.
A wealth-creating machine
Real estate income (NYSE:O) has done a fantastic job of increasing value for its shareholders over the years. Since its IPO in 1994, the REIT has generated an average annual compound total return of 15.1%. As a result, a hypothetical investor who bought $300 of his stock every month would have become a millionaire in 26 years.
One of the keys to Realty Income’s ability to make millionaires has been its ever-increasing stream of passive income. The REIT has increased its dividend 116 times since 1994, increasing its payout at a compound annual rate of 4.4%. He has repeatedly increased his payout by steadily expanding his portfolio of income-generating real estate.
Realty Income sees a huge opportunity to continue to grow in the years to come. The REIT estimates that there is $12 trillion of owner-occupied commercial real estate in its core global markets, providing it with a large pool of acquisition opportunities. The company has a top-notch financial profile, which gives it great financial flexibility to continue doing business. This leads the REIT to believe it can continue to grow its portfolio and its dividend – which currently yields around 4% – at an attractive rate. Overall, it expects to generate double-digit average annual total returns.
A stable wealth creator
Residential Equity (NYSE: EQR) also has an excellent track record of growing shareholder value. The REIT apartment has provided an average annual total return of 12.4% since its IPO in 1993. At this rate, a hypothetical investor who bought $300 of its stock every month would become a millionaire in about 30 years.
Like Realty Income, one of the keys to Equity Residential’s ability to deliver double-digit total returns has been its steadily rising dividend. Equity Residential has increased its payout at a compound annual rate of 6.4% over the past decade.
The company has focused on owning apartments in high-cost housing markets where supply is limited. This has kept occupancy levels high, allowing the REIT to steadily increase rental rates. In addition, Equity Residential developed new apartment complexes and made acquisitions to steadily expand its portfolio and rental income.
The REIT expects its rental income to continue to increase in the future. It has begun to expand its portfolio from high-cost coastal markets to faster-growing Sun Belt metropolitan areas, positioning it to capitalize on the upward rental growth of those markets. The company has made several acquisitions and is investing in several other development projects. She finances these investments by selling older properties and using her strong financial profile.
Actions taken by Equity Residential to accelerate its rental income growth should enable the REIT to continue to increase its dividend, which currently yields 3.2%. It has the potential to continue to generate total annual returns approaching its historical level.
Get rich slow with these REITs
Realty Income and Equity Residential have an excellent track record of making their inventors rich, thanks in part to their ability to steadily increase their attractive dividends. With still significant growth, these REITs could continue to generate double-digit total annual returns. They could very well turn long-term investors into millionaires in the future.
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Matthew DiLallo holds positions in Realty Income. The Motley Fool has no position in the stocks mentioned. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.