Are we in a recession?
In technical terms, yes.
Gross domestic product (GDP) shrank in both the first and second quarters of this year, meeting that specific definition of a recession.
But here’s the thing: It just doesn’t feel like a recession.
The labor market is still tight, and getting a table at a good restaurant is still difficult.
With an aggressive Federal Reserve raising rates at 0.75% every meeting, the odds that something breaks … and this mild technical recession turns into something far nastier … grow by the day.
That’s OK.
We shouldn’t fear recessions, as they are just part of the ebb and flow of the economic cycle.
But while we shouldn’t fear a recession per se, we should prepare for one!
Self Storage Is Counter-Cyclical
If storm clouds are rolling in, self storage is one of the most recession-proof industries out there.
If a recession gets nasty enough, the demand for storage increases.
People downsize, trade to smaller homes or apartments or even move in with family.
But they still have to put their stuff somewhere.
Recent statistics show that more than 9% of American households rent storage space.
There are more storage units across the United States than Starbucks, McDonald’s, Dunkin’ and Pizza Hut restaurants combined.
And occupancy stays above 90%.
Americans love their stuff.
They need to put it somewhere regardless of what the economy is doing.
A Favorite Self Storage REIT: National Storage Stock’s Power Ratings
Look at one of my favorite growth real estate investment trusts (REITs): National Storage Affiliates Trust (NYSE: NSA).
After a recent dip in the stock price, the shares yield a fantastic 5.6%.
And this self-storage REIT is a serial dividend raiser. It’s already hiked its dividend twice this year by 22%. NSA has more than doubled its dividend since 2017.
Even in a world of 8% inflation, that’s solid growth!
NSA rates a “Neutral” 48 on our Stock Power Ratings system, but I think it’s important to dig deeper here.
NSA’s Stock Power Ratings in October 2022.
Spiking bond yields have hammered REITs. That has weighed on NSA’s momentum and volatility ratings, which stand at 56 and 46 respectively.
But unless you believe that long-term yields will continue to soar higher from here — and let me be clear that I do not — then it’s hard to see this trend continuing to hurt recession-resistant REITs.
If anything, a recession should come with falling long-term yields, which would be a tailwind to yield-sensitive REITs.
(Remember: As bond yields rise, bond prices fall, as do securities that tend to trade like bond substitutes, such as high-yield REITs. But as bond yields fall, it all goes into reverse, and prices rise.)
A Closer Look at NSA’s Growth
It’s NSA’s growth factor I’m most excited about.
This is a REIT with a business model about as exciting as watching paint peel, yet it rates a stellar 88 on our growth factor.
And it has done this despite a string of mediocre years for the storage industry.
Imagine how much it could grow if a proper housing bust forced Americans to downsize!
Bottom line: The next several months might be scary.
Only time with tell.
But we can sleep easy with low-drama storage REITs like National Storage Affiliates.
To safe profits,
Charles Sizemore, Co-Editor, Green Zone Fortunes
Charles Sizemore is the co-editor of Green Zone Fortunes and specializes in income and retirement topics. He is also a frequent guest on CNBC, Bloomberg and Fox Business.
