3 Best REIT Dividend Stocks to Buy Now

In an unpredictable stock market, dividend stocks can serve as a safe haven. These companies distribute a portion of their earnings to shareholders on a regular basis, usually quarterly or monthly. Furthermore, dividend-paying stocks can appreciate in value, resulting in long-term capital gains.

These stocks are suitable for long-term investors who seek consistent income and growth, rather than gains in the short term. Here, we'll be delving into real estate investment trusts (REITs), which are legally required to pay out 90% of their taxable income to shareholders in the form of dividends. As a result, they make an appealing dividend choice for investors seeking passive income.

In the case of REITs, AFFO (adjusted funds from operations) is considered when determining a company's ability to pay dividends. AFFO, like net income for non-REITs, measures how much of the company's earnings can be paid out as dividends. 

Here are three REIT dividend stocks that you might want to consider right now. 

Dividend Stock No 1: Realty Income

Realty Income Corporation (O), also known as "The Monthly Dividend Company," is a REIT that invests in single-tenant retail and commercial properties. It then leases them out to tenants in a variety of industries. The company's tenant base is diverse, spanning industries such as retail, industrial, and healthcare. This diversification protects it from industry-specific challenges and provides a recurring source of income.

Valued at $50.5 billion, O stock has gained 1.4% year-to-date (YTD), compared to the S&P 500 Index’s ($SPX)gain of 14.5%. 

The company's long-term lease agreements typically have a weighted average lease term of 9.7 years, indicating recurring revenue. The company is known for paying a monthly dividend, hence its nickname, "The Monthly Dividend Company." It recently increased its monthly dividend to $0.2630 per share from $0.2625. 

By paying dividends for 29 consecutive years, Realty Income is now included in the S&P Dividend Aristocrat Index. This strong track record also showcases the safety of its dividends. 

Realty's forward dividend yield of 5.4% is higher than the real estate sector average of 4.4%. The forward FFO payout ratio of 74.1% appears to be high, but it is manageable if the company continues to increase its FFO and generate positive FCF.

In the first quarter, Realty's AFFO increased by 5% year over year. Management expects AFFO to rise by 3.2% to 5.2% in 2024. Analysts predict that Realty Income's FFO will increase by 3.56% in 2024 and another 4.19% in 2025.

Overall, analysts have an average rating of “moderate buy” for O stock. Based on its mean target price of $61.23, the stock has an upside potential of 5.3% from current levels. Plus, its high target price of $69 implies that the stock could rise as high as 18.6% over the next 12 months. 

Out of 19 analysts covering the stock, seven have a “strong buy” rating, one has a “moderate buy” rating, and 11 have a “hold” rating.

Dividend Stock No 2: Innovative Industrial Properties

The cannabis industry is rapidly expanding, providing tremendous opportunities for investors. Nonetheless, the drug is still federally illegal, making investors wary of getting involved in the industry. 
One way to help mitigate this risk is by investing in companies linked to the cannabis sector. Innovative Industrial Properties (IIPR), also known as IIP, is one such unique REIT that has capitalized on the growing demand for medical-use cannabis by offering real estate solutions tailored to the cannabis industry's needs. 

Valued at $3.48 billion, IIPR stock has gained 22.5% YTD, edging past the broader market.

IIP focuses on the acquisition, ownership, and management of specialized properties, which are then leased to regulated state-licensed cannabis operators under long-term triple-net lease agreements of 14.6 years. In return, the company receives rental income. IIP has 108 properties (operational and under development/redevelopment) in 19 states. Its tenants include well-known cannabis companies such as Cresco Labs (CRLBF), Trulieve Cannabis (TCNNF), Green Thumb Industries (GTBIF), and more.

In 2023, Innovative's AFFO increased by 7% year-on-year compared to 2022. However, in the most recent first quarter, AFFO fell by 2% year over year. IIP pays a forward dividend yield of 6.18%, much higher than the real estate average. The company distributed a quarterly dividend of $1.82 per share (82% of its AFFO) during the quarter.

IIP's forward FFO payout ratio of 90.2% is quite high. Unless IIP continues to increase its AFFO, this payout will be difficult to sustain. The company has increased its dividend over the last six years. Analysts expect FFO to fall by 1.8% in 2024 before rising by 4.18% in 2025, respectively.

Overall, analysts have assigned IIPR stock a “moderate buy” rating. The stock has surpassed its mean target price of $108.75. However, the Street-high estimate of $140 represents about a 13.3% increase from current levels. 

Out of the six analysts covering the stock, two have a "strong buy" rating, and four rate IIPR a "hold."

Dividend Stock No 3: American Tower

American Tower Corporation (AMT) is a REIT that owns and develops wireless and broadcast communications real estate. It provides wireless communication infrastructure, such as towers and distributed antenna systems (DAS), among other technologies. The company operates on multiple continents, generating diverse revenue streams and reducing reliance on a single market.

Valued at $99.8 billion, American Tower stock is down 0.4% YTD, lagging the overall market.

In the first quarter of 2024, AFFO increased by 9.8% year on year to $2.79 per share. The company generated $882 million in free cash flow during the quarter. 

American Tower has a forward dividend yield of 3.03%, which exceeds the real estate average. Its FFO payout ratio of 61.5% suggests that dividends are currently sustainable and have room to grow. Notably, AMT has increased its dividends for the last 11 years. 

In 2024, the company expects AFFO to increase by approximately 5.6%. Similarly, analysts expect American Tower's FFO to increase by 7% in 2024 and 2.6% in 2025.

Analysts have assigned a mean target price of $227.16 to AMT, implying 5.7% upside potential from current levels. The high target price of $248 further indicates a 15.4% upside over the next 12 months.

Overall, analysts have an average rating of “strong buy” rating for AMT stock. Out of 20 analysts covering the stock, 15 have a “strong buy” rating, one has a “moderate buy” rating, and four suggest it is a “hold.”