Three Recession-Beating Retailers I’m Holding Onto Today

[Wide Moat Daily]( Three Recession-Beating Retailers I’m Holding Onto Today By Brad Thomas, Editor, Wide Moat Daily Kingda Ka at Six Flags Great Adventure in Jackson, New Jersey, is the world’s tallest roller coaster – a title it’s held since opening in May 2010. At 456 feet high, it stretches higher than some skyscrapers. And it features a massive drop of 418 feet while reaching the insane speed of 128 miles per hour in 3.5 seconds. But perhaps the best part is that, if you hate the experience, it’s over in 50 seconds. That’s the longest you have to hold on. Less than a minute. I wish I could give you a similar assurance about the roller coaster ride all of us investors are on right now. However, I have to admit I have no clue. While we know the stock market’s long-term direction is up, it can be a blind ride on a day-to-day basis. We know where we’ve been – up and down and then up and down again – but the exact number of loops, hills, and drops we’re in for over the remainder of August or the rest of the year… That’s left to be seen. What seems much more certain is that the U.S. economy isn’t nearly as stable as the stock market has been indicating. If it was, it probably wouldn’t have crashed the way it did on news of a foreign bank raising its rates. That observation is just one of the reasons I’m confident in predicting a recession before long. Maybe it will end up beginning this quarter. Maybe it won’t manifest itself until next year. Maybe it will be a garden-variety recession. Maybe it will be something more significant. But one way or the other, I want to be properly secured before we start that freefall. And that means evaluating my portfolio now instead of waiting ‘til tomorrow. Nothing but Net-Lease [Yesterday]( I gave you a list of real estate investment trust sectors to avoid during a recession. Today, I’m going to give you ones that are better suited to handle the twists and turns of a decelerating economy. Here’s a quick reminder of what I already wrote on the subject: … REITS – owning to their setup – are legally required to allocate at least 90% of their taxable income to shareholders. Because of that, they tend to handle their finances conservatively. That’s why I consider so many of them to be long-term plays. I buy them and keep them for years – even decades – unless their fundamentals take a turn for the worse or their shares get so overpriced that it becomes foolish not to take a profit. In other words, these kinds of REITs can do well in any economic environment. And they pay out rising dividends year in and year out regardless. Take net-lease REITs, which tend to own single-tenant properties they rent out under very specific contracts. Their (mostly retail) tenants pay their own property taxes, insurance, and maintenance costs. In exchange, they pay lower rent and have much more freedom to run their stores. Net-lease landlords, meanwhile, tend to enjoy faithful payments from noteworthy corporations over long periods of time. I’ll quote Sumit Roy, president and CEO of one such company, Realty Income (O), which I mentioned in yesterday’s piece: Investing in net-lease real estate, as evidenced by historical performance, provides investors an attractive risk-return profile. The ability to surgically invest based on a curated set of industries and operators allows net-leased companies to create a stable, well-diversified real estate portfolio of freestanding single-tenant properties under long-term net-lease agreements that continue to perform well relative to other sectors. Further, the growth outlook for the sector, which is largely predicated on external acquisitions, has remained strong through a variety of economic environments. In short, this is a recession-resistant category I enjoy holding in ups and downs alike. The Doctor Will See You Now Here’s another REIT sector to look into if you’re concerned about a recession – which I hope I’ve stressed you should be. Not panicked, just forewarned to be forearmed. Recessions are inevitable, and most people don’t see them coming. In which case, holding recession-resistant companies in your portfolio is always a good idea. Always. That’s why so many investors have seen the benefits of owning healthcare REIT shares. Because, downturn or not, people don’t skimp on going to the doctor’s. If they’re sick, they’re sick. And that sickness needs to be treated. Now, it’s true that the Covid-19 chaos sent many healthcare providers and their landlords into the red. Skilled nursing facilities were seen as death camps. Senior housing was hardly popular either. And hospitals – which were canceling elective surgeries left and right on their own – were avoided at most costs other than Covid itself. But that (hopefully) once-in-a-lifetime ordeal is over and done with. And all these organizations are filling up once again just like old times. Speaking of old times – and, for the record, I’m hardly 21 myself – the aging Baby Boomer generation practically guarantees good business for healthcare providers and their landlords from here on in. This generation is the largest the U.S. has ever seen, and they’re now in their 60s or 70s. The more we age, the more medical treatments we need. Ipso facto, healthcare REITs should enjoy a “necessity” status for years to come, recession in or recession out. A Surprising Luxury That Stays Popular No Matter What My final “recession-resistant” REIT sector might surprise you since it easily falls into the “luxury” category. Nobody needs to gamble at casinos and sports events. Yet they do anyway. Regardless of whether the good times are rolling or not. Think about it: When people have plenty of money to spend, they’re much more apt to throw it away on entertainment. And gambling is, if nothing else, very entertaining. The thrills of trying out your luck at a card table, a slot machine, or a big game, are hard to beat. Trust me. I get to go to Vegas every year, and I always give myself $500 to test my luck. It’s fun playing, and it’s fun winning. It’s not fun losing, of course. But that works in casinos’ favor, too. Because when the chips are down, people are even more interested in winning. That’s why I write in The Intelligent REIT Investor: Believe it or not, casino REITs aren’t that big of a gamble… They use ultra-long-term, triple-net contracts of 15-25 years each to sign on tenants. So most of the risk – both financial and operational – lies squarely on their tenants’ shoulders, such as Las Vegas Sands, MGM Resorts, Wynn Resorts, Caesars Entertainment, Churchill Downs, Eldorado, and other fairly famous names. In fact, those tenants bore the full brunt of their diminished income during the shutdowns. They kept paying their rent each and every month as if they were still rolling in the dough the whole time. Which meant the REITs that house them kept paying their dividends exactly as expected. You can’t ask for much better than that kind of constancy when the stock market is faltering. Everything else around you might be an unpleasant roller coaster ride. But you can sit back and enjoy the ride, knowing your dividends and the REITs behind them should continue growing along the way. Regards, Brad Thomas Editor, Wide Mat Daily [Wide Moat Research]( Wide Moat Research 1125 N Charles St, Baltimore, MD 21201 [www.widemoatresearch.com]( To ensure our emails continue reaching your inbox, please [add our email address]( to your address book. This editorial email containing advertisements was sent to {EMAIL} because you subscribed to this service. To stop receiving these emails, click [here](. Wide Moat Research welcomes your feedback and questions. But please note: The law prohibits us from giving personalized advice. To contact Customer Service, call toll free Domestic/International: 1-888-415-6046, Mon–Fri, 9am–5pm ET, or email us [here](mailto:feedback@widemoatresearch.com). © 2024 Wide Moat Research. All rights reserved. Any reproduction, copying, or redistribution of our content, in whole or in part, is prohibited without written permission from Wide Moat Research. [Privacy Policy]( | [Terms of Use]( | [Unsubscribe](