Stock Talk - Philip Martin, Morningstar

We're joined now by Philip Martin from Morningstar we've been talking about realistic this morning we're gonna continue that. With a couple REIT stock picks from Phil Barton felt welcomed the show -- to a. Not good morning very very well. Tell us about Alexandria. Real estate equities. Symbol RE RE trading on the New York Stock Exchange. Yep this is. The for the company that owns and develop specialize glad that it at least feel. Life science Biotech and pharmaceutical and that is -- by the GlaxoSmithKline. Very high very quickly business model of the best in class. And hard to replicate business model with a very strong management team. A dividend yield is that low but. But the annual dividend will -- we expect to be well above 5% the next couple of years. In the over the past here at the dividend a little over 13%. Of very strong cash flow very sustainable business model. And that's one -- with each of the names we'll talk about the morning is that we're we're looking certainly for value but we're also looking for healthy balanced he. And cash -- and dividend growth momentum and sustainability. If the values or looking for the price to earnings ratio seems to be higher at 51 to one. Well this is -- company. At least we have to remember we -- the primary metric that we look at the funds from operations and that. Net income. With an -- that the depreciation real estate depreciation because again these are real thick heavy companies with a lot of appreciation component yeah. We add that that a look at. More of a true -- alone numbered -- we look at that oh here and FFO. The first shares led around four dollars and forty cents. Output here and that rain soaked it didn't -- much different multiple usually in the high eighteen below wanted to. Nice okay when you're next pick is also in the health care sector it's eight CN healthcare REIT. This has a much healthier much larger dividend yield of four point 9%. -- then all these companies you know Alexandria port trading well below -- fair value estimate -- 87 but the best value of the group. Helped carry spreading more closely aligned with their value but that the the company that owns and develops. A very large and diversified healthcare real estate portfolio consisting primarily of at the the living an independent living and medical office. Again -- hard to replicate that the model benefiting from very favorable and sustainable that the Q were you sustainable health care industry trends though. A four point 9% dividend yield we think they're gonna Billy -- that dividend. At least a 5% pretty consistently over the next couple here. Okay and what was the name of your third. Written real statement. -- -- It is real income. A symbol of old and it trade also on the New York it -- -- and it is allowed in diversified portfolio real estate lift at least he'll. Need driven consumer retail. So that companies that think auto part the other services. Retail drugstores. I'm very very steady -- what they -- our best in class name with a four point 3% dividend yield. A terrific management team and again a company that done very well for economic cycles in terms of cash flow sustainability and giving up. Phillip how will these stocks perform if we have a fairly. Significant increase in the rate of inflation commodity prices increase I'm talking about cement steel glass copper. All the things that go into commercial real state of those prices accelerated as I anticipate will happen to value of these -- All these companies are not significant developers Alexandria helped -- at a development component but it's a relatively small component. Now they hit that dead. Hurt too much the key thing here is that in and arriving at flea market these companies will do quite well because number one of them have the ability it. Well there's dividend even if growth -- even have. Economic growth slowed a bit these companies can grow their dividend. And the typical -- structure that easily. Employ. Has happened there. Increases. The annual increases tied to inflation. You're going that the inflation adjusted growth of these companies now. These companies no -- to a -- it to an improving economy and allowed it to the economy though. There are income plays but there also wrote plays but the nice combination of broken into and you get here. And inflation protection. Yeah I'd like the idea of back as you're getting paid all of these stocks have dividends and and two point eight to four point 9% -- getting paid something while you're right you're holding the investment. And typically I -- the real state over a long term increases and I. But when you look at commercial real state over say twenty years -- your record time. What types of price increases do you see in in commercial real estate -- Pro here. Well typically. A good way to look at that as well when you look at these individual football -- in the same store. Operating income -- that he is from these companies and you'll typically if something in the neighborhood of two to 4% normalized and then normalized economy -- a bit. Better growth -- some of these names right now because we're coming up a bit of a bottom but you get. Could afford it -- five but then they are operating income growth and that will certainly help underlying real estate valuations. And what will also help in -- underlying real estate valuations it. We've had very little in the way of new supply it was a real estate supply the last ten years. The we have very good supply fundamentals we're just waiting for some of the demand fundamentals -- -- and then. That -- occur. Slowly here that the economy improves. Are -- we sure appreciate your time thank you very much -- thank you that's Philip Martin for Morningstar giving us three. Real estate stock picks when we come back I'll give you symbols for all three of those stocks -- -- us this is the financial exchange with June night Barry Armstrong.