Investing in dividend stocks is a meaningful aspect of my investing strategy. They enable me to generate passive income, which I use to compound my income by reinvesting the cash into buying more dividend-paying stocks. Dividend stocks have also historically outperformed non-dividend-payers, offering a 9.2% annualized return, versus 4.3% over the last 50 years, according to data from Ned Davis Research and Hartford Funds.
Dividend growers have produced the highest returns at 10.2% annualized, which is why I focus my attention on companies that can increase their payouts. Realty Income(NYSE: O), Mid-America Apartment Communities (NYSE: MAA), and Vici Properties(NYSE: VICI) have excellent records of growing their dividends. On top of that, they offer higher dividend yields, which enables me to generate more income for every dollar I invest. That's why I can't wait to buy more of each one this October.
As consistent as they come
Realty Income offers a very attractive dividend yield these days. The diversified real estate investment trust (REIT) has a payout above 5%. That's several times higher than the S&P 500's sub-1.5% dividend yield.
Where Realty Income stands out is in its ability to increase its dividend. The REIT has raised its payment 127 times since coming public in 1994, including for 108 straight quarters. It has grown its dividend at a 4.3% compound annual rate, contributing to its 13.5% annualized total return.
Acquisitions are the main factor driving Realty Income's steadily rising dividend. The REIT estimates that every $1 billion of accretive acquisitions it makes will add 0.5% to its adjusted funds from operations (FFO) per share each year. It plans to make $3 billion in property purchases this year, in addition to its $9.3 billion merger with fellow REIT Spirit Realty. With trillions of dollars of commercial real estate, Realty Income should have no trouble continuing to grow its portfolio, income, and dividend.
Enhancing its ability to increase its dividend
Mid-America Apartment Communities currently offers a dividend yield of more than 3.5%. The apartment REIT has raised its payout for 14 straight years, including by 5% late last year.
The landlord benefits from steadily rising rental income. It owns apartment communities across the Sun Belt region where the population and jobs are growing at above-average rates. That drives demand for housing, keeping occupancy levels high and rents rising at a healthy pace.
MAA also benefits from its investments toexpand its apartment portfolio. For example, the REIT bought a recently developed apartment community in Raleigh, North Carolina. Meanwhile, it has seven new communities under development that it expects to complete over the next couple of years. It plans to start another four to six more development projects over the next two years to continue expanding. These new additions will enhance its ability to capitalize on rising rents, which should enable it to continue increasing its dividend.
A smart strategy
Vici Properties' dividend yield is over 5%. The REIT, which focuses on owning experiential real estate, like gaming, hospitality, and entertainment properties, has increased its payment for seven straight years. That's every year since it came public. It recently raised its payment by 4.2% and has delivered a peer-leading 7% compound annual dividend growth rate since 2018.
New investments are the main factor driving Vici Properties' rapidly rising dividend. It has acquired experiential properties from operators in sale-leaseback transactions, completed a merger with another large gaming REIT, and invested in several development projects.
Vici Properties' credit investment platform helps open the door to new investment opportunities. For example, it converted a loan with Chelsea Piers into an acquisition of that property last year. Meanwhile, it recently agreed to fund the development of a Margaritaville Resort. As part of the deal, the REIT received the option to buy that property and several sports-related properties in the development. Vici Properties' expanding portfolio should grow its income, allowing the REIT to continue raising its dividend.
Great dividend growth stocks
Realty Income, MAA, and Vici Properties offer high-yielding dividends that have steadily increased. The trio of REITs seem likely to continue growing their payouts. That's why I can't wait to add to my positions in October. That will enable me to collect more of the income these REITs produce while positioning my portfolio to earn above-average total returns over the long term.
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Matt DiLallo has positions in Mid-America Apartment Communities, Realty Income, and Vici Properties. The Motley Fool has positions in and recommends Mid-America Apartment Communities and Realty Income. The Motley Fool recommends Vici Properties. The Motley Fool has a disclosure policy.
