Dividend stocks have historically been wise investments. They’ve outperformed nondividend payers by more than 2-to-1 over the past 50 years, according to data from Ned Davis Research and Hartford Funds. Companies that grow their dividends have proven to be the smartest investment because they’ve generated the highest returns (10.2% average). At that rate of return, they can grow a $100 investment into about $15,875 in 50 years.
Realty Income (O -0.56%), Invitation Homes (INVH -0.06%), and Rexford Industrial Realty (REXR -0.41%) are standout dividend growth stocks. The real estate investment trusts (REITs) have high dividend yields and excellent growth track records. With relatively low share prices, they’re some of the smartest dividend stocks to buy for those with $100 to invest right now.
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An amazing growth record
Realty Income’s share price was recently around $57.50. At that price and its recently raised dividend rate, the diversified REIT yields 5.5%. That’s several times higher than the S&P 500 (^GSPC -0.22%) (less than 1.5%).
Few companies have delivered the level of dividend growth that Realty Income has achieved since coming public in 1994. It has raised its monthly dividend payment an impressive 131 times, including for the last 111 straight quarters (and 30 years in a row). The REIT has grown its payout at a 4.2% compound annual rate. That steadily rising dividend has contributed to its robust total return, which has averaged 13.6% since it went public.
Realty Income should have no trouble continuing to increase its high-yielding dividend. It has a low dividend payout ratio (less than 75% of its stable cash flow) and one of the 10 best balance sheets in the REIT sector. That gives it ample financial flexibility to continue acquiring income-generating real estate. With a $14 trillion total addressable market opportunity across its target property types, it has plenty of room to continue growing.
Cashing in on strong and growing rental demand
Invitation Homes’ share price was recently below $34. At that price, it has a 3.5% dividend yield at its current payment rate. The REIT has raised its dividend every single year since it went public in 2017, including by 3.6% last year.
The landlord has delivered sector-leading same-store net operating income growth since coming public, due to its focus on single-family rental properties in fast-growing metro areas. It has enhanced its overall growth rate by routinely buying more rental properties.
Those two growth drivers should continue bolstering the REIT’s financial results. Demand for rental properties remains robust due to the high costs of buying a house.
Meanwhile, the REIT has a strong financial profile, which should support continued portfolio expansion. It has many ways to grow its portfolio, including buying purpose-built rental properties directly from leading homebuilders (over 1,800 homes currently under contract). Its dual growth drivers should allow it to continue increasing its dividend.
The REIT’s focused strategy has paid big dividends
Rexford Industrial Realty’s share price was recently under $37. That gave the industrial REIT a dividend yield of around 4.7%. Rexford has grown its dividend at a robust 16% compound annual rate over the past five years and by 248% overall in the past decade, significantly outpacing the REIT sector average.
The company focuses solely on the Southern California industrial market, which benefits from high demand and constrained supply. That drives robust rent growth. Rexford also routinely buys additional properties and invests in redevelopment projects to enhance the appeal of its existing properties.
Rexford estimates that a combination of embedded rental increases in its existing portfolio, rent growth as legacy leases expire and reprice to higher market rates, and repositioning and redevelopment projects will boost its NOI by 34% over the next few years. On top of that embedded growth, the REIT has the financial flexibility to continue making value-enhancing acquisitions. These drivers should enable the REIT to continue increasing its dividend.
Smart dividend growth stocks
Realty Income, Invitation Homes, and Rexford Industrial Realty have terrific records of growing their dividends. The REITs are in a strong position to continue increasing their payouts in the future, thanks to their high-quality portfolios, strong financial profiles, and visible growth prospects. Because of that, they look like some of the smartest dividend stocks to invest $100 into right now.
Matt DiLallo has positions in Invitation Homes, Realty Income, and Rexford Industrial Realty. The Motley Fool has positions in and recommends Invitation Homes and Realty Income. The Motley Fool has a disclosure policy.
