Best Stocks to Buy Right Now: Dutch Bros vs. Realty Income

There are many ways to play the investment theme. for example, Dutch Brothers (bros -0.95%) It’s a coffee chain that gives investors direct exposure to the large and important restaurant sector. real estate income (o 0.27%) A landlord focused on owning retail-focused asset types that can house Dutch Bros or similar businesses.

Of these two stocks, one is a growth story and the other is an income story. Here’s what you need to know to choose which product to buy.

Dutch Brothers: One aspect of growth through coffee

Dutch Bros only went public at the end of 2021. Although it is a very young company, it is expanding at a rapid pace. To put the numbers into perspective, we ended the third quarter of 2023 with 794 locations, up from 641 in the same period last year. This represents a 25% increase in the coffee chain’s store count in just 12 months.

Image source: Getty Images.

During the same period, revenue increased 33%. Adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) surged 91%. These are big numbers, which is why investors want to own Dutch Bros. Future growth potential also remains strong. The company was profitable in the third quarter of 2023 despite spending heavily on growth.

Wall Street warmly welcomed Dutch Bros during its initial public offering (IPO). But fickle investors have since moved on to other trendy investment themes (such as artificial intelligence), sending Dutch Bros shares down more than 60% from their post-IPO highs. For more aggressive growth investors with a long-term focus, this could be an attractive investment option.

BROS data from YCharts

Realty Income’s Income-Driven Retail Approach

That said, rapid growth comes with risks, including the potential for significant business mistakes that could have a major impact on financial results. This is something some investors don’t want to worry about. And still others would prefer to see cash directly rather than have management reinvest all that money into the company to grow it. But there’s no need to shy away from the retail sector that Dutch Bros is involved in. You can buy a real estate investment trust (REIT) like Realty Income that focuses on retail real estate.

Basically, Realty Income charges companies like Dutch Bros rent for the privilege of occupying the property. However, because there are hundreds of tenants, the success or failure of a single tenant (or a single location) does not have a significant impact on the overall results. In fact, if a tenant fails, Realty Income can transfer the affected property to someone else, assuming it is well located. You can view Realty Income as a safer way to gain exposure to the retail sector. The proof is that dividends have increased every year for 29 consecutive years. You don’t build that dividend track record by accident.

But there’s another wrinkle here. Realty Income’s dividend yield is around 5.9%. This is not surprising, as REITs are designed to deliver income to investors. However, this makes the stock a solid choice for conservative, dividend-oriented investors. Please note that Dutch Bros does not pay dividends. Because all the free cash goes into the business.

Not necessarily better, but significantly different.

Dutch Bros and Realty Income both offer investors exposure to the retail sector, but in very different ways. Dutch Bros is like a laser beam, and your profits will largely depend on how well the company executes its expansion plans. Growth investors will likely find this attractive. Realty Income is like a light bulb. Lasers are brighter, but bulbs illuminate more areas more consistently. For conservative income investors, this is probably a better option.