The S&P500 has been on fire for the past year. The broad market index is up almost 25% over the past twelve months. Most stocks in the S&P 500 followed higher.
However, there is a segment of the market that is underperforming: real estate investment trusts (REITs). Higher interest rates have depressed real estate values ​​and REIT stock prices. Several top REITs are currently about 15% or more below their 52-week highs, inclusive Real estate income (NYSE:O), Extra space storage (NYSE:EXR)And Central American apartment communities (NYSE: MAA). As a result, investors can buy these great dividend stocks at lower prices, locking in to higher prices dividend yields.
A steadily increasing payout
Realty Income has an excellent track record of growing its dividend. The diversified REIT has increased its payout 125 times since its listing in 1994 for 107 consecutive quarters. It has increased its dividend at a compound annual rate of 4.3% over that period last month by 2.1%.
With the share price falling and the dividend payout increasing, Realty Income’s dividend now yields more than 6%. That is multiples above the dividend yield of the S&P 500 (1.3%).
Realty Income should have no problem continuing to increase its dividend in the future. It has one of the strongest financial profiles in the REIT sector, supporting the vision that it can grow resources from operations (FFO) per share by 4% to 5% per year through rental growth and new investments in income-generating properties. The REIT should have done that no shortage of investment opportunities, given that there are trillions of dollars of commercial real estate it could acquire in the future.
The third-party management strategy yields a lot dividends
Extra Space Storage has seen its dividend grow significantly over the years. The leading self-storage REIT has increased its payout by nearly 245% over the past decade, including 8% last year. With the payout rising and the share price falling, Extra Space currently yields over 4.5%.
The REIT should be able to continue increasing its dividend going forward. It benefits from the steadily rising demand for self-storage space as more Americans use storage. This keeps occupancy rates high, encouraging steady rental growth and expansion opportunities.
Extra Space has grown its FFO per share faster than its peers over the years, thanks in part to its industry-leading third-party management platform. That strategy makes it possible to earn recurring management fees and other income for a low investment.
Extra Space also has a long track record of acquiring properties, including those it manages. Last year, the company struck a deal to acquire rival Life Storage, creating the nation’s largest self-storage operator. With a strong balance sheet and a leading third-party management platform, Extra Space has plenty of room to grow in the highly fragmented self-storage industry.
Rising rents should continue to drive this payout higher
Mid-America Apartment Communities recently declared its 122nd consecutive quarterly cash dividend. The apartment REIT has never reduced or suspended his payoff in his more than 30 years of company history. The company has increased its turnover dividend in each of over the past 14 years, including 5% last year. With the share price under pressure and payouts rising, Middle America is yielding more than 4.5%.
The REIT has benefited from its focus on owning apartments in the fast-growing Sun Belt region. The country has also benefited from population and employment growth, which has led to robust housing demand. That has kept occupancy rates high across the portfolio, allowing the REIT to raise rents and build additional apartment communities.
Mid-America recently completed one development project and acquired two recently built communities late last year. It has five projects in development and expects to launch four to six more projects in the next two years. Along with rental growth, the company’s growing apartment portfolio should generate additional income to continue growing the dividend.
These great dividend stocks are active sale
Rising interest rates have historically put downward pressure on REIT stock prices a few year. That allows investors to pick up shares of top dividend-paying REITs, such as Realty Income, Extra Space Storage and Mid-America Apartment Communities, at lower prices and higher dividend yields. With more growth on the horizon, these REITs should provide investors with plenty of income in the coming years. Moreover, they have strong upside potential as interest rate headwinds fade.
Should you invest €1,000 in real estate income now?
Consider the following before purchasing shares in Realty Income:
The Motley Fool stock advisor The analyst team has just identified what they think is the 10 best stocks for investors to buy now… and Realty Income wasn’t one of them. The ten stocks that survived the cut could deliver monster returns in the coming years.
Think about when Nvidia created this list on April 15, 2005… if you had $1,000 invested at the time of our recommendation, you would have $671,728!*
Stock Advisor provides investors with an easy-to-follow blueprint for success, including portfolio building guidance, regular analyst updates, and two new stock picks per month. The Stock Advisor is on duty more than quadrupled the return of the S&P 500 since 2002*.
View the 10 stocks »
*Stock Advisor returns May 28, 2024
Matt DiLallo has positions in Mid-America Apartment Communities and Realty Income. The Motley Fool holds positions in and recommends Mid-America Apartment Communities and Realty Income. The Motley Fool recommends additional storage space. The Motley Fool has a disclosure policy.
3 Great S&P 500 Dividend Stocks Down 15% to Buy and Hold Forever was originally published by The Motley Fool
