Real estate investment trusts (REITs) typically come to mind when considering the most yield-friendly asset class.
And it's these generous yields that make REIT dividends especially attractive to income investors. According to NAREIT data, equity REIT dividend yields averaged approximately 2.6% in 2021, or more than twice the 1.2% yield of the S&P 500 (.SPX).
REIT yields tend to be higher than other stocks due to requirements that 90% of their taxable income be paid out to shareholders. In addition, real estate investment trusts are better able to sustain high payouts over long periods because of their unique business model; specifically, the fact that they derive steady income from long-term leases on their properties.
Plus, REITs tend to have embedded escalators in their leases that cause rents to rise annually. Many firms will also link rent increases with the consumer price index (CPI), making REITs ideal investments during times of higher inflation.
While investors will often seek out the best REITs to buy based on their rich yields, they might often overlook a firm's ability to deliver exceptional dividend growth. BCA Research recently forecast REIT dividends rising by 10%, on average, in 2022, versus 7.1% for the broader S&P 500.
But many real estate stocks have already been rewarding shareholders with impressive dividend growth – and conventional stock market wisdom says that the safest dividend is the one that was just raised.
With that in mind, here are seven REITs that have the fastest-growing dividends. All of the companies featured here have been reliably raising payouts in recent years and boast trailing 12-month dividend growth of at least 10%.
Data is as of April 11. Dividend yields are calculated by annualizing the most recent payout and dividing by the share price.
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NexPoint Residential Trust
Market value: $4.2 billion
Dividend yield: 1.7%
TTM dividend growth: 10%
Net migration of retirees and tech workers to the Sunbelt is creating favorable tailwinds for NexPoint Residential Trust (NXRT, $84.65), a REIT that owns multi-family real estate in fast-growing areas of the Southeast and Southwest. At present, NXRT owns 39 apartment complexes representing 14,825 housing units across 10 Sunbelt urban markets. Its core markets include Houston, Dallas/Fort Worth, Raleigh, Charlotte, Atlanta, Nashville, Orlando, Tampa, South Florida, Las Vegas and Phoenix.
The REIT creates value by acquiring and then upgrading outdated properties, adding modern amenities and green cost-saving features while keeping rents low. Portfolio occupancy currently stands at 94.3% and the average monthly rent for a NexPoint Residential property is $1,261.
The current crisis of affordable housing in many U.S. markets is the result of the loss of many low-cost units since 2011. NexPoint Residential helps address this problem by setting monthly rents at levels within the reach of 96.0 million U.S. households, or roughly 67.5% of total households.
NexPoint Residential's strategy of acquiring and upgrading existing apartment properties in the Sunbelt has helped to fuel same-store revenue and income growth. It's also allowed the REIT to outperform its residential housing peer group since 2015.
NXRT renovated 1,264 apartment units during 2021 and realized a 21.1% ROI from these efforts. In addition, the REIT acquired four Sunbelt apartment complexes totaling 1,129 units for $289.5 million. Among them was a property in Charlotte, North Carolina, which expanded the company's footprint in the lucrative Research Triangle market.
The combination of acquisition and same store growth helped NexPoint Residential deliver a 5.5% increase in same store income, 12.6% core FFO per share gains and a 12% rise in dividend payments in 2021.
And more growth appears on the horizon. The REIT is guiding for a 22% increase in core FFO (funds from operations, a common REIT earnings metric) per share in 2022, which will be achieved via a combination of rent increases, renovations and acquisitions. NexPoint Residential plans to renovate 1,465 units this year, including some recently purchased properties. The firm also expects to acquire another $150 million to $300 million of real estate, with emphasis on Atlanta, North Carolina, Phoenix and South Florida.
Investors looking for consistent REIT dividends will find a winner in this one. NXRT has grown dividends 11%, on average, annually over the last five years and held payout low at 51.5% of adjusted FFO on a trailing 12-month basis.
Raymond James analyst Buck Horne reiterated his Outperform (Buy) rating on NXRT shares in February. The company's "extraordinarily successful value-add strategy" makes "NXRT's renovated apartments remain highly attractive" to the rush of renters moving to Sunbelt markets, the analyst wrote in a note.
Horne is not alone in his bullish outlook. The stock is rated Buy or Strong Buy by four of the six Wall Street analysts covering the shares.
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Market value: $21.1 billion
Dividend yield: 5.1%
TTM dividend growth: 10%
VICI Properties (VICI, $28.15) is a triple-net-lease REIT that owns a portfolio of casinos, hotels and entertainment destinations. This includes 43 properties across 15 states, roughly 3.8 million square feet of casino space, 58,000 hotel rooms and 63,000 casino gaming units.
The REIT leases its facilities to MGM Resorts (MGM), Caesar's Entertainment (CZR), Hard Rock, The Venetian and other top-tier gaming space tenants. It does so under triple net agreements that hold the tenant responsible for facility maintenance, improvement, property taxes and other expenses.
VICI's weighted average lease terms are the longest in the triple-net-lease sector at 43.2 years. And most of its leases have embedded 1.8% annual rate increases that escalate with rising inflation (as measured by the consumer price index). A strong leasing structure has helped VICI Properties outperform peers by generating 11% annual adjusted FFO growth over three years.
The REIT made two game-changing acquisitions in 2021. The first is the $17.2-billion purchase of MGM Growth Properties (MGP), which adds 15 entertainment resort properties, 33,000 hotel rooms, 3.6 million square feet of convention space and hundreds of food, beverage and entertainment venues to the REIT's portfolio. This deal will be immediately accretive to adjusted FFO and is expected to close in the first half of 2022.
The second is the $4-billion acquisition of The Venetian Resort in Las Vegas, which adds roughly 7,000 luxury hotel suites and one of the largest trade show and convention facilities in the U.S. to its holdings. In addition, this deal immediately adds $250 million to annualized rents.
Ahead of these acquisitions, VICI Properties was already growing at an accelerated clip. In 2021, revenues surged 23% year-over-year, while adjusted FFO jumped 25% and dividends increased 10%. Plus, VICI anticipates its credit rating could be lifted to investment grade after both acquisitions close, which will reflect the benefits of enhanced leverage, scale and tenant diversity.
VICI Properties went public in 2018. As far as REIT dividends go, VICI has been consistent with raising its shareholder payout. Over the last three years, the company has hiked dividends an average of 8% annually. And dividend payout is modest for a REIT, at only 78%.
CBRE Equity Research analyst John DeCree is bullish on casino stocks in general and especially favors shares of VICI in 2022. He has a Buy rating on the stock based on growth catalysts that include significantly expanded scale and a potential credit rating upgrade that will lower borrowing costs.
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Arbor Realty Trust
Market value: $2.7 billion
Dividend yield: 8.4%
TTM dividend growth: 13%
Arbor Realty Trust (ABR, $16.93) is one of the best names out there when it comes to growing REIT dividends. The company has produced 10 straight years and seven consecutive quarters of dividend hikes. And on a three-year and five-year basis, ABR has delivered annual dividend growth of 11% and 17%, respectively.
ABR is a mortgage REIT (mREIT) that invests in structured finance assets in the multi-family, single-family rental and commercial real estate sectors. Arbor Realty focuses primarily on bridge and mezzanine loans, real estate joint ventures and mortgage-related securities. The firm also manages a multi-billion loan servicing portfolio.
Plus, Arbor Realty is a leading Fannie Mae lender and Freddie Mac loan seller and servicer. Reliable growth comes from its $27 billion loan servicing portfolio, which generates a steady income stream of $121 million annually and has nine years of remaining life.
Unusual among mortgage REITs, Arbor Realty has increased dividends 10 years in a row while maintaining the lowest payout in the mREIT industry. ABR's loan origination volume and servicing portfolio have averaged annual growth of 11% and 15%, respectively, over the last five years.
Arbor Realty originated $16.1 billion of new loans in 2021, up 76% from last year and a new record. Lower-risk multi-family property loans makeup 91% of the geographically diverse portfolio. Average loan size is small at $21 million, while the loan-to-value ratio is healthy at 76% and maturities are longer than average for these types of loans, at 24.6 months.
While the bulk of ABR's loan portfolio is in multi-family properties, single-family rental housing is one of the fastest-growing real estate sectors – and one Arbor Realty sees great growth opportunities in. Already in 2022, the REIT has over $2 billion of deals in its pipeline for this asset class. The firm is also realizing strong growth in its relatively new private loan program, which originated $1.4 billion of loans in 2021, up 276% year-over-year.
Arbor Realty grew distributable earnings by 15% in 2021 and delivered four consecutive quarters of record loan origination volume.
ABR shares are not widely followed by Wall Street, but have earned Buy ratings from three of its four stock analysts. Bullish investors cite the REIT's consistent track record of double-digit dividend growth, ability to grow despite inflation and appealing valuation and yield as reasons to invest.
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Market value: $121.5 billion
Dividend yield: 2.1%
TTM dividend growth: 15%
American Tower (AMT, $263.31) is a perennial favorite of investors seeking out growing REIT dividends. This cell tower REIT has delivered better than 20% annual dividend growth since 2011, well supported by 15.3% annual gains in adjusted FFO.
American Tower is the world leader in cell tower infrastructure. The company owns 220,000 cell tower sites worldwide, including extensive footprints in the Americas, Europe, India, Europe and Africa. Demand for cell tower space is expanding rapidly thanks to growing penetration for wireless service and rising usage of mobile data, forecast to grow 25% annually in the U.S. through 2027.
Also contributing to AMT's robust FFO outlook is its operating leverage tied to increasing its number of tenants per existing cell towers. American Tower realizes a 3% return on investment (ROI) when one tenant leases a tower; this rises to 13% when another tenant is added and 24% when three tenants share the same tower.
AMT's revenues rose 16% in 2021, adjusted FFO increased 15% and dividends grew 15%. This REIT has supported three and five-year annual dividend growth rates of 18% and 19%, respectively, while maintaining payout at 98% of adjusted FFO, but just 54% of cash flow.
In mid-November, American Tower agreed to acquire data center REIT CoreSite Realty for $10.1 billion. The transaction is not only accretive, but also gives AMT data centers that will make it a major player in the 5G world.
Wall Street analysts like American Tower's high-quality assets and strong growth prospects linked to mobile data traffic growth and 5G deployments. The 23 analysts following AMT stock have a consensus rating of Buy.
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Market value: $5.6 billion
Dividend yield: 1.8%
TTM dividend growth: 15%
Investors who like Terreno Realty (TRNO, $74.23) describe this industrial REIT as a FROG (fast rate of growth REIT) that is likely to outperform in 2022. TRNO owns industrial real estate in six major coastal U.S. markets – Seattle, Los Angeles/San Francisco, New York
City/New Jersey, Washington D.C. and Miami – that are together major entry points for goods into the country. These port cities are also characterized by significant regulatory and physical barriers to new competitors.
Terreno Realty's current portfolio consists of 253 buildings encompassing 15.1 million square feet of storage space and same-store occupancy rates exceeding 98% at the end of 2021. Top tenants include some high-profile players like the U.S. Postal Service, Amazon.com (AMZN), FedEx (FDX) , Danaher (DHR) and Costco (COST). And TRNO's top 20 tenants represent roughly 27% of annual rent.
Compared to other industrial REITs, Terreno Realty has facilities that are located in higher density population areas. The REIT seeks to build on this advantage through a strategy focused on expanding in infill submarkets.
TRNO closed $657.3 million of acquisitions during 2021, including $326.1 million finalized during the December quarter. The company also has another $125.8 million of deals under contract. Growth via acquisitions has been achieved while maintaining an investment grade credit rating.
Terrano had a solid 2021, with FFO per share rising 19%. The REIT's dividends have risen more than 12% annually since TRNO commenced payments in 2011.
The price of TRNO shares began to drop in January when Baird analyst David Rogers downgraded the stock to Hold from Buy, due primarily to valuations concerns. The stock is down roughly 13% for the year-to-date, which may create an attractive entry point for new investors looking to gain income from REIT dividends.
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Market value: $39.0 billion
Dividend yield: 0.7%
TTM dividend growth: 24%
UBS analysts think that SBA Communications (SBAC, $361.30) is the cell tower REIT best-positioned to profit from upcoming 5G investments.
Like American Tower, this REIT owns and operates cell towers and related infrastructure in the Americas, Africa and the Philippines. SBA Communications has operations and offices in 16 markets. It provides cell tower services to T-Mobile (TMUS), AT&T (T) and Verizon (VZ) in the U.S. and Oi SA (OIBRQ), Telefonica (TEF) and America Movil (AMX) internationally.
The REIT's existing portfolio includes 34,177 cell towers and SBA Communications recently closed the purchase of another 1,445 towers in Africa. Future growth will come from systemically expanding its portfolio via both acquisitions and development and adding more tenants per tower. At present, SBA Communications averages just 1.8 tenants per tower.
SBAC produced record results on several metrics during 2021, with leasing and services backlogs hitting all-time highs. Additionally, adjusted FFO per share rose 14% on an annual basis.
The company believes that robust 5G spending by its customers will significantly boost demand for its services this year and is guiding for adjusted FFO per share up 9% at the midpoint in 2022.
With more cash than debt, SBA Communications has plenty of capital to support business expansion and dividends. The company boosted its quarterly dividend by 22% at the end of 2021, but this represents just 25% of its forward adjusted FFO.
SBA Communications began paying dividends in 2019 so lacks a three- or five-year track record for growth. Still, the 24% dividend hike over the last 12 months sends a powerful signal to investors looking for REIT dividends, as do analyst forecasts for double-digit annual payout hikes over the next three years.
Analysts, in general, are upbeat toward SBAC. The REIT is a top communications infrastructure pick for J.P. Morgan, Bank of America and UBS.
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Equity Lifestyle Properties
Market value: $15.2 billion
Dividend yield: 2.1%
TTM dividend growth: 31.9%
Another residential REIT benefiting from net migration of people to the Sunbelt is Equity Lifestyle Properties (ELS, $77.92).
This REIT specializes in manufactured housing; its portfolio consists of 444 communities, 169,296 manufactured home sites, RV resorts and campgrounds across the U.S. While ELS has a presence in 35 states and Canada, its primary geographic focus is coastal and Sunbelt retirement and vacation destinations.
The migration of seniors to Sunbelt states like Florida, Arizona and California is projected to grow at mid-teen rates through 2026, and Equity Lifestyle Properties provides an affordable housing option for these retirees.
This reliable REIT has performed steadily across real estate cycles, delivering 9% annual FFO per share gains and 22% annual dividend growth since 2006. In addition, Equity Lifestyle Properties increased the predictability of revenues after the 2008 housing crisis by reducing the number of renters and increasing the number of homeowners in its portfolio. Renters stay on average three years while homeowners typically stay 10 years. Thanks to this shift, ELS also enjoys a high 95.2% portfolio occupancy.
The REIT acquired 11 marinas, six RV communities and an 80% interest in six additional RV communities in 2021. Core portfolio growth and higher occupancies helped fuel a 17% increase in FFO per share. Amid these improving fundamentals, ELS rewarded investors early in 2022 with a 13.1% annual dividend hike.
This is just more of the same for Equity Lifestyle Properties – and good news for investors seeking out REIT dividends. On average, ELS has grown its dividend by 11% and 15%, respectively, on a three-year and five-year basis. Plus, the firm boasts a ultra-conservative 59% payout from FFO.
ELS shares are rated Buy or Strong Buy by six of the 10 covering Wall Street pros. Barclays analyst Anthony Powell commenced coverage of ELS stock last September with a rating of Outperform. He likes the REIT's Sunbelt exposure, and believes that rising populations and income in this market will fuel better-than-average rent growth for ELS.
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