Dividend stocks can be fantastic investments. The best ones offer a growing stream of passive income and a steady increase in stock prices as they increase revenue. These two drivers often ensure that dividend stocks can deliver above-average total returns.
There are many great ones dividend stocks. Central American apartment communities (NYSE: MAA) And Invitation Houses (NYSE: INVH) stand out as excellent buys now for those seeking income and growth.
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Mid-America Apartment Communities has been a steady grower over the years. The apartment-focused real estate investment trust (REIT) has increased its dividend for fourteen years in a row, including by 5% last December. The landlord has benefited from steady rental growth and the growing apartment portfolio.
This year was a different story for the REIT. The resources from operations (FFO) have fallen from $6.85 to $6.65 per share in the first nine months of this year. The culprit is a surge in the supply of new apartments in Southeast markets. This has weighed on the occupancy rate and rental growth. the average effective rent per unit decreased by 0.4% in the third quarter.
However, the company expects the headwinds to ease next year as it foresees a significant decline in the supply of new apartments that will continue for several years. That’s driving the view that the country will “enter a new multi-year cycle where demand exceeds supply,” CEO Eric Bolton said in the third-quarter earnings release. This should lead to a higher occupancy rate and rental growth in the coming years.
Additionally, the REIT has gone on the offensive as its competitors have retreated from new developments due to the impact of higher interest rates. The REIT currently has eight apartment communities in development that are expected to be completed in the coming years. It is also actively buying recently built apartments from developers. These investments will deliver incremental profit growth in the coming years.
Headwinds in Central America have weighed on the share price. It is currently sitting 33% below the peak of a few years ago. The decline has helped boost the dividend yield by almost 4%. With headwinds easing, the REIT offers an attractive income stream and huge upside potential.
Invitation Houses is one residential REIT focused on single-family homes. The REIT has increased its dividend every year since the IPO in 2017, including by 7.7% last December. It has benefited from rental growth and expanding portfolio.
The demand for single-family homes is still high. The REIT’s occupancy rate has remained high at 97%, while same-store rents increased 4.2% in the third quarter.
Invitation Homes has complemented the strength of its existing real estate portfolio by adding more homes to the mix. It purchased 1,591 wholly owned homes for $557 million and invested a further $37 million in 108 joint venture properties during the first nine months of the year. The REIT also expanded its third-party management platform. Add rising income from new investments to growing rental income and the REIT’s core FFO rose 6.8% per share in the third quarter.
The REIT is in an excellent position to continue growing. Demand for single-family rental properties remains robust due to high demand costs of buying a house. It is currently 33% cheaper to rent than to buy in the 16 core markets where Invitation Homes owns properties. This keeps the occupancy rate high and at the same time makes the REIT possible to steadily increase rents as leases expire.
Meanwhile, Invitation Homes has a strong balance sheet, giving it the flexibility to continue growing its portfolio. The company has agreed to buy about 2,700 homes from builders, giving it a pipeline of new real estate additions. Additionally, it can purchase individual properties on the open market, acquire rental property portfolios from other investors and expand its third-party management platform to drive additional growth.
Despite continued growth, Invitation Homes shares have lost about 30% of their value from their peak a few years ago. This has contributed to the dividend yield increasing to approximately 3.5%. With more growth on the horizon, this REIT looks like an attractive investment now.
Mid-America Apartment Communities and Invitation Homes offer attractive dividend yields because of their steady payment growth and decline in their stock prices. In the meantime, both REITs have plenty more growth ahead of them, and should be able to generate attractive total returns as their earnings and dividends grow. That makes them great stocks to buy now.
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Matt DiLallo holds positions in Invitation Homes and Mid-America Apartment Communities. The Motley Fool holds positions in and recommends Invitation Homes and Mid-America Apartment Communities. The Motley Fool has a disclosure policy.
2 Great Dividend Stocks to Buy Now for Income and Growth was originally published by The Motley Fool
