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My 5 Largest Stock Holdings -- Here’s the One I’d Buy More of Now

Matthew Frankel, The Motley Fool

I own 38 individual stocks among my retirement and non-retirement brokerage accounts (you can see the full list on my profile page), but not all are equally weighted. In other words, some of the stocks I own make up less than 1% of my portfolio, while others represent rather large investments.

With that in mind, here are the five largest stock positions in my portfolio, why I own each one, and which one I think is the best buy now.

Stock quote page in a newspaper.

Image source: Getty Images.

Rank

Company (Symbol)

Recent Stock Price

Dividend Yield

1

Realty Income (NYSE: O)

$51.28

5.2%

2

Howard Hughes Corporation (NYSE: HHC)

$137.90

N/A

3

Bank of America (NYSE: BAC)

$32.42

1.5%

4

Square (NYSE: SQ)

$54.43

N/A

5

Digital Realty (NYSE: DLR)

$105.38

3.8%

Data source: TD Ameritrade. Prices and yields current as of 3/16/18.

About my top five and why I own each one

If you look at my previous articles, you'll notice that most of the stocks I write about are banks and real estate investment trusts, so it should make sense that the largest stock positions in my portfolio fall into these two categories. I actually have a pretty diversified portfolio, but these just happen to be my largest investments.

Here's a quick rundown of why I like each one, as well as links to full-length pieces I've recently written about all five:

  • Realty Income is a net-lease REIT specializing in retail properties, particularly those in non-discretionary, low-priced, or service-oriented types of retail. The recession- and e-commerce-resistant nature of the tenant base, combined with the long-term net lease structure, has made Realty Income an extremely reliable dividend stock. The company has made more than 570 consecutive monthly dividend payments and has increased the payout 96 times since its 1994 NYSE listing.
  • Howard Hughes Corporation is a real estate company, but it isn't a REIT. The company specializes in "master-planned communities," such as Summerlin in Las Vegas to name one example. While it's obviously more complex than this, the basic idea is that Howard Hughes sells land within its communities to homebuilders, and as the growing residential population creates opportunities, the company builds commercial properties to capitalize on the opportunity.
  • Most people are familiar with Bank of America as a company, but from an investment standpoint, the reason that I own it is that it is a tremendously improved bank since the financial crisis, thanks to cost-reduction initiatives and excellent overall management. Additionally, tax reform, rising interest rates, and the strong U.S. economy could be powerful growth catalysts going forward.
  • It's getting tougher to find cash-only businesses in the United States, and Square is perhaps the biggest reason for it. The company has revolutionized payment processing solutions for small businesses, and is doing a great job of building a small-business financial ecosystem with features like its Square Capital business lending platform and its Caviar food delivery technology. And on the personal side, the Square Cash app has picked up tremendous traction in the peer-to-peer payments space. As it's only in five countries so far, Square has lots of room to grow in the years ahead.
  • Digital Realty is a REIT focused on data center properties. The company is one of the largest owner/operators of data centers in the world, and this is a rapidly growing segment of the real estate industry, as the need for secure and reliable computing space has exploded over the past decade or so and continues to grow at a rapid pace. Digital Realty has handily outperformed its REIT peers as well as the S&P 500 in its 14-year history as a public company, and continues to deliver excellent results.

It's also worth mentioning that two of these stocks -- Bank of America and Square -- became two of my largest stock positions by accident. What I mean by this is that I invested relatively small amounts of money in them when they were much cheaper than they are today, Bank of America at about $12 and Square at about $10. At the time, I thought both looked like compelling long-term values, but the performance of both has exceeded even my most optimistic expectations over the past couple of years, and now they proportionally represent more of my portfolio than I originally intended.

Which one is the best buy now?

To be clear, I don't think investors would go wrong buying any of these stocks right now -- that's why I still own so much of them.

Having said that, the REITs look especially attractive right now, and Digital Realty in particular is one that I would consider buying more of right now. At about 16.1 times expected 2018 FFO (the REIT version of earnings), it is on the more expensive end of the REIT sector, but for good reason.

Specifically, Digital Realty is one of the leaders in a segment of real estate that has incredible growth potential. It shouldn't come as much of a surprise that data traffic and the need for data storage has grown tremendously in recent years. On top of this, there's about to be a surge in connected devices in brand-new categories that could cause the need for data centers to explode. Internet of things (IOT) connected devices are expected to grow at a 34% annualized rate over the next few years, and to name a specific example, autonomous vehicles (which will be transmitting a receiving tons of data) are expected to increase at an even faster 37% rate through 2025. And large, financially flexible companies like Digital Realty will have a big advantage when it comes to meeting the demand.

In the meantime, Digital Realty has a fantastic business with more than 200 data centers around the world and tenants that include companies like IBM, Facebook, and Oracle, just to name a few of the largest. The company pays a 4% dividend yield that has grown by an average rate of 12% since 2005, and with a low (for a REIT) payout ratio, there's no reason to think this trend will end anytime soon.

Although I already have a substantial amount of Digital Realty stock in my portfolio, this is the one that I'm considering adding more of in 2018, and plan to hold onto for decades to come.

More From The Motley Fool

Matthew Frankel owns shares of Bank of America, Digital Realty Trust, Realty Income, Square, and The Howard Hughes. The Motley Fool owns shares of and recommends Facebook. The Motley Fool owns shares of Oracle and Square. The Motley Fool is short shares of IBM and has the following options: short June 2018 $52 calls on Oracle and long January 2020 $30 calls on Oracle. The Motley Fool recommends The Howard Hughes. The Motley Fool has a disclosure policy.