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Growth and Dividends? Have Your Cake and Eat It Too With These 3 Stocks

Real estate investment trusts, or REITs, are "total return" investments. This means that in addition to the dividends these stocks pay, which are generally well above average, there is growth potential, as the values of the underlying properties increase over time. Here are three REITs that have particularly attractive growth and income potential over the coming years.

Company

Recent Stock Price

Dividend Yield

20-Year Total Return (Annualized)

Welltower (NYSE: HCN)

$72.10

4.8%

12.8%

Simon Property Group (NYSE: SPG) 

$164.21

4.3%

14%

National Retail Properties (NYSE: NNN)

$40.47

4.7%

12.3%

Data source: TD Ameritrade. Stock prices, dividend yields, and total returns are current as of 8/8/17.

A rapidly growing market

Healthcare REIT Welltower is one of the largest real estate investment trusts in the market and has been around since 1971. The company owns 1,384 properties throughout the U.S., Canada, and the U.K. -- 70% of which are senior housing. Outpatient medical facilities and long-term/post-acute care facilities make up the other 30%.

Image Source: Getty Images.

The primary reason I like healthcare real estate is for the growth potential. The U.S. population is aging fast, and older Americans not only use healthcare facilities more frequently but also spend more when they do. In fact, the average person over the age of 85 spends nearly five times as much as the average American on healthcare expenses every year. The 85-and-older population is expected to double over the next 20 years, which will create a steady rise in healthcare demand -- especially for senior housing, Welltower's bread and butter.

In addition, Welltower is the largest healthcare REIT and has tremendous financial flexibility, which puts it in prime position to take advantage of opportunities going forward. The company could pursue development or renovation opportunities, or can pick and choose the most attractive acquisition opportunities. Healthcare real estate is a $1.1 trillion market and is only about 15% REIT-owned, so there's no shortage of possibilities in the existing market.

Not all retail is struggling

Shopping mall and outlet center REIT Simon Property Group is actually the largest real estate investment trust in the stock market, by a large margin. And while there certainly are plenty of malls across America that are struggling, thanks to e-commerce competition, Simon's properties are doing just fine.

In fact, in its second-quarter earnings report, Simon reported year-over-year FFO per share growth of 7.6%, and increased its full-year guidance. Simon's malls have an occupancy rate above 95%, and several new development and redevelopment projects are underway.

What makes Simon different from struggling retail-oriented companies? For starters, Simon does a fantastic job of adapting to changing consumer preferences and also has effectively integrated technology into its properties. Simon is more than willing to spend money to remain competitive, as there are redevelopment projects underway at 25 of the company's properties, including several expansions.

It's also important to note that Simon's Premium Outlet properties are quite recession-resistant by nature. Outlets offer bargains that generally aren't available online (at least in large quantities), and consumers tend to become bargain hunters when times get tough.

Low-risk lease structure and recession-resistant properties

Finally, I'd like to discuss another retail-oriented REIT that could be a bargain right now, thanks to the general weakness in brick-and-mortar retail. National Retail Properties is a net-lease REIT whose portfolio is comprised entirely of retail tenants.

However, there are a couple of big points to consider, which differentiate National Retail Properties' net-lease retail investments from other types of retail. For starters, most of the company's tenants are engaged in recession-resistant businesses or have e-commerce resistance -- or both. For example, about 18% of the portfolio is made up of convenience stores, which sell products people need (recession-resistant) and don't have time to wait for (e-commerce-resistant). Restaurants, both full- and limited-service, make up nearly 20% of the portfolio and are naturally immune to online competitors, as are automotive service centers (6.9% of the portfolio), fitness centers (5.6%), and theaters (4.7%).

In addition, the net-lease structure adds an element of stability. If you're not familiar, a net lease means that the tenants are responsible for certain expenses in addition to simply paying rent. The most common form is known as a "triple-net" lease, where tenants pay property taxes, insurance, and maintenance costs. These tend to be long-term leases, with annual rent increases, or escalators, built right in.

The recession- and e-commerce-resistant tenant base, combined with the desirable net-lease structure, produces a remarkably stable revenue stream that grows over time. In fact, National Retail Properties currently has a 99.3% occupancy rate, and the stock has increased its dividend annually for 28 consecutive years.

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Matthew Frankel has no position in any stocks mentioned. The Motley Fool recommends Welltower. The Motley Fool has a disclosure policy.