I'm a huge fan of dividend-paying stocks. I love to see the passive income flow into my portfolio because it gives me more cash to invest. On top of that, dividend stocks have historically been better wealth creators than non-payers, delivering more than double the annual total return on average over the last 50 years.
Those factors are why I'm always looking for dividend stocks to buy. Topping my list right now are Realty Income (O -0.76%), Rexford Industrial (REXR -1.23%), and Mid-America Apartment Communities (MAA -1.02%). The trio of real estate investment trusts (REITs) offers higher-yielding dividends that have historically grown.
This top-tier REIT is on sale
Shares of Realty Income have lost more than 15% of their value from the peak earlier this year. That sell-off has driven the REIT's dividend yield up over 6%, well above the S&P 500's dividend yield of around 1.2%.
That high-yielding dividend is on an extremely firm foundation. Realty Income owns a diversified real estate portfolio, including retail, industrial, gaming, and other properties, net leased to many of the world's leading companies. The REIT's net leases supply it with very stable rental income because the tenants cover real estate taxes, routine maintenance, and building insurance.
Realty Income pays out a conservative percentage of its cash flow in dividends -- in its case, about 75% of its adjusted funds from operations -- which enables it to retain a meaningful amount of cash to fund new income-generating real estate investments. The REIT also boasts one of the strongest balance sheets in the sector, giving it additional financial flexibility to fund new investments. That growing portfolio should enable the company to continue increasing its dividend, something it has done 128 times since coming public in 1994.
Meaningful growth already built in
Rexford Industrial's stock has gotten hit really hard this year, slumping more than 30% from its peak. That has pushed its dividend yield up to 4.4%. The main issue is a slowdown in the Southern California industrial real estate market, which is its sole focus. It's the largest industrial market in the country and consistently has the highest demand and the lowest supply.
While demand has cooled off from its peak, it's still very strong. That's driving robust rent growth in the market. For example, Rexford executed 657,000 square feet of new and renewal leases earlier in the fourth quarter at a whopping 60% increase compared with the prior rents on those spaces. Meanwhile, occupancy remained healthy at 95.9%.
Given where market rents are, Rexford has significant built-in growth. The REIT estimates it will add an incremental $72 million to its net operating income (NOI) over the next three years as legacy leases expire and it signs new leases at higher market rates. Add embedded rental increases on existing leases -- for example, leases signed in the fourth quarter will rise at a 3.9% annual rate -- along with its current repositioning and redevelopment projects and recently secured acquisitions, and its NOI should grow 34% over the next three years. Meanwhile, there's more upside potential from additional accretive acquisitions. These catalysts should enable the REIT to continue growing its dividend. It has delivered 18% compound annual dividend growth over the past five years.
Entering a new growth cycle in 2025
Mid-America Apartment Communities stock has slumped almost 10% from its recent high. That has pushed the residential REIT's dividend yield up to around 4%.
The apartment landlord has battled supply issues this year, which has affected rent growth. However, strong housing demand in its markets has steadily absorbed this new apartment supply, which has now peaked. That drives the REIT's view that "in calendar year 2025 we will see a meaningful decline in the amount of new supply impacting our portfolio, and we will enter a new multiyear cycle with demand outpacing supply."
Mid-America should benefit from an acceleration in rent growth over the next year. The company will also get a boost from the nearly $1 billion of apartment development projects it has coming online over the next few years into what should be much stronger market conditions. On top of that, it has the financial capacity to approve new development projects and make additional acquisitions, further enhancing its ability to capitalize on the upcoming growth cycle. This growth should enable the REIT to continue increasing its dividend, which it has done for 15 straight years after recently boosting its payment by another 3.1%.
High yields and total return potential
Realty Income, Rexford Industrial, and Mid-America Apartment Communities currently offer investors higher dividend yields due to the sell-off in their stock prices. The REITs also have solid growth prospects. That combination of income, growth, and lower prices makes them stand out as some of the top dividend stocks to buy right now, because they should be able to produce strong total returns from here.
