2 hot stocks to buy and hold until you retire

You might not retire for 30 years, or maybe retirement is much closer in your future. Either way, every investor needs growth stocks to buy and forget with confidence as they rise in value and pay you dividends in the meantime.

How can we find such stocks? Look for companies with a strong and cohesive growth plan, as well as a history of dividend increases, such as Target (NYSE: TGT) and Innovative industrial properties (NYSE: IIPR). The target is up nearly 40% year-to-date, and Innovative is up over 45% in 2021. Over the past five years, the stock returns of these two companies have easily exceeded the S&P 500the growth. As a perspective, Target’s stock is up over 219% while Innovative’s is up over 1,500%, compared to S&P’s 111% return over this period.

Here’s why I think both companies can continue to reward investors.

Image source: Getty Images.

Target is one of the few retailers who understand online sales

Four years ago, Target was in the middle of a year of rare revenue decline when it announced a three-year plan to invest $ 7 billion in e-commerce. This movement continues to bear fruit. Its same-day delivery and online shopping initiatives have increased its sales. In the third quarter, the company said it saw its digital sales increase by 29% compared to the same period in 2020, while same-day services saw their revenue increase by 60% year-over-year.

But it’s not just online. So far this year, Target has opened 32 new stores, after opening 30 last year, all at a time when other outlets are contracting. The company, in its third quarter report, said it plans to renovate 145 of its stores in 2021.

Target is on track for a record nine-month revenue year. In the third quarter, the retailer reported nine-month revenue of $ 75 billion, up 15% from the same period last year, allowing it to exceed revenue of $ 103.3 billion from last year. Earnings per share (EPS) for the nine months was listed at $ 10.87, an 83.9% improvement over the same period in 2020.

Target increased its quarterly dividend by 32% this year to $ 0.90 per share, giving it a modest return of 1.29%, but that depends in part on the increase in the stock this year. Additionally, the company became a Dividend King this year when it increased its dividend for the 50th consecutive year.

The company started offering dividends when it went public in 1967 and has never missed a quarterly payment. It keeps its very safe cash dividend payout ratio at 24.47%, so there is plenty of room for that dividend to grow.

Innovative Industrial Properties builds a great ditch

Innovative Industrial Properties is no longer the only real estate investment trust (REIT) specializing in the sale and leaseback of properties to cannabis companies, but first and foremost it is cannabis REIT. This has enabled it to increase Funds From Operations (FFO) by 17,000% over the past five years.

Although this rate of growth will be difficult to match in the future, the company continues to make gains. In nine months, Innovative Industrial Properties recorded an FFO of $ 84.3 million, up 94% year on year, while its FFO per share was $ 4.77, up from $ 3.42 per share earlier. is one year old.

The company just increased its quarterly dividend by 7% to $ 1.50 per share, which, even at its improved market price, delivers a return of 2.05%. Innovative Industrial Properties has increased its dividend 12 times since the company went public with an initial public offering in 2016, including in the last six consecutive quarters. Its adjusted FFO payout ratio of 87.17% is a bit high, even for a REIT, but not too worrisome given the company’s steady cash flow.

What I like most about Innovative Industrial Properties is that its business plan is relatively low risk, especially for a REIT. According to a study by Grand View Research, legal cannabis sales are expected to increase at an annual growth rate (CAGR) of 26.7% between 2021 and 2028.

Due to federal banking laws, Innovative Industrial Properties’ sale-leaseback model is one of the few ways for U.S. cannabis companies to raise funds. The IIPR purchases the growing, processing and retail properties of these companies, then re-leases them with long-term triple net leases that put most of the costs on tenants.

This provides Innovative Industrial Properties with a stable source of income. As of November 3, the company said it owned 76 properties in 19 states. Of its 7.5 million rentable square feet, 100% has been leased, with an average remaining lease term of 16.7 years. Some of its tenants are among the top U.S. cannabis companies, including Truly, International Green Thumb, and Cresco Laboratories.

The regulated cannabis industry is poised for significant growth, with regulated sales in the United States expected to reach $ 45.9 billion by 2025, according to research by Innovative Industrial Properties. With 14 remaining states that have yet to open up to marijuana sales and 32 states that have not approved recreational cannabis sales, there is plenty of room to grow. Even if the SAFE Banking Act is ultimately passed to give marijuana a cheaper source of capital, Innovative’s leaseback program will still be useful for growing cannabis companies in need of an additional source of capital. .

^ SPX chart
Data by YCharts.

Make a long-term choice

Target appears to be the safer choice of the two companies, although both are relatively safe bets. The only concern I have with innovative industrial properties is that they work in such an emerging industry that rapid and potentially disruptive change is more likely.

However, it is difficult to dispute the growth history of Innovative Industrial Properties’ FFOs. As other REITs have entered the cannabis space, Innovative’s market cap overshadows its competitors, such as AFC Gamma, Power REIT and NewLake Capital Partners, which gives it less real competition against Target, which is battling other retail giants Amazon and Walmart, among others.

This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are motley! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.

Comments are closed.