Dividend stocks can be excellent long-term investments. Over the past fifty years, the average dividend stock has outperformed the equal-weighted stock S&P500 index, with the best total returns coming from dividend growers.
REITs tend to be great dividend growth stocks. Agree Real Estate (NYSE:ADC), Rexford Industrial Real Estate (NYSE: REXR)And Invitation Houses (NYSE: INVH) are among the many REITs with excellent results in steadily increasing their dividends. That makes them no-brainer purchases for those who have a bit a bit of cash to put to work now.
Stability pays off
Agree Realty has increased its dividend at a compound annual rate of 5.6% over the past decade. The retail REIT currently paying one monthly dividend that yields almost 5%, several times higher than the S&P 500’s 1.3% dividend yield. To put that in perspective, an investor can generate almost $5 in annual dividend income for every $100 invested in the REIT invests. That compares to just over $1 in annual dividend income from an S&P 500 index fund.
The REIT owns properties net rented or land rented to financially strong retailers. These lease structures provide this terribly stable cash flow. It typically pays out less than 75% in dividends. That gives it a healthy cushion that it can use to reinvest in additional income-generating properties.
Agree Realty typically purchases properties from existing retail partners sale-leaseback transactions. It also provides financing to develop new properties. The partners currently own more than 165,000 properties, giving the REIT, which owns approximately 2,200 locations, a long growth trajectory.
Focus pays off
Rexford Industrial Realty is a industrial REIT focused exclusively on the Southern California logistics market. It owns more than 400 properties in a region of tight supply and high demand. This keeps vacancy rates low and at the same time ensures strong rental growth.
The REIT’s focused strategy has paid off big time. The company has grown its profits at a compound annual rate of 15% over the past five years, driven by rental growth, acquisitions and repositioning and redevelopment projects. That has allowed the REIT to increase its dividend by an average of 18% per year over the past five years. These rates are well above the peer group average of 11% for profits and 10% for dividends.
Rexford should be able to grow its earnings and dividend, which yields almost 4%, at a healthy pace in the coming years. The REIT estimates that embedded rental growth, recent acquisitions and investments to reposition and redevelop existing properties should grow net operating income by 47% over the next three years. Moreover, it has a strong financial profile, giving it sufficient flexibility to continue making new investments in the coming years.
Strategy pays off
Invitation Houses is one residential REIT focused on single-family homes. It owns or has an interest in almost 90,000 homes and manages another 17,000 for third parties. These properties are located in 16 markets where population and employment are growing at above-average ratesand stocks are limited, making buying much more expensive than renting. These factors keep occupancy rates high and ensure strong rental growth.
In addition to rental growth, Invitation Homes is steadily expanding its portfolio. It buys homes from a variety of sources, including from builders. The country recently agreed to buy another 500 new-build homes, some of which it should take possession of later this year, part of the 1,000. expected to close at the end of the year. It also launched a third-party management platform earlier this year, which is growing rapidly. Recently, 4,000 homes were added to that platform as part of a joint venture investment.
Rising rents and a growing portfolio should enable Invitation Homes to continue increasing its dividend. It increased its payout by almost 8% earlier this year and is up more than 250% since its 2017 IPO.
Great dividend stocks
REITs can be excellent dividend stocks. That has certainly been the case for Agree Realty, Rexford Industrial Realty and Invitation Homes over the years. Now that more dividend growth is likely, it seems no brainer buy now. Given their higher returns, they can generate more income from every dollar invested, making them ideal for people who don’t currently have a lot of money to invest.
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Matt DiLallo has positions in Invitation Homes and Rexford Industrial Realty. The Motley Fool holds positions in and recommends Invitation Homes and Rexford Industrial Realty. The Motley Fool has a disclosure policy.
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