Dividend stocks can be fantastic investments. The best ones supply a growing stream of passive income and steady stock price appreciation as they increase their earnings. Those two drivers often enable dividend stocks to deliver above-average total returns.
There are many great dividend stocks. Mid-America Apartment Communities(NYSE: MAA) and Invitation Homes(NYSE: INVH) stand out as excellent ones to buy right now for those seeking income and growth.
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Poised for a rebound in 2025 and beyond
Mid-America Apartment Communities has been a steady grower over the years. The apartment-focused real estate investment trust (REIT) has increased its dividend for 14 straight years, including by 5% last December. The landlord has benefited from steady rent growth and its expanding apartment portfolio.
This year has been a different story for the REIT. Its funds from operations (FFO) have slipped over the first nine months of this year, falling from $6.85 to $6.65 per share. The culprit has been a surge of new apartment supply in its markets across the Southeast. That has weighed on occupancy and rent growth. average effective rent per unit was down 0.4% in the third quarter.
However, the company expects its headwinds to fade next year because it foresees a meaningful decline in new apartment supply, which should continue for several years. That drives the view that it "will enter a new multiyear cycle with demand outpacing supply," according to comments by CEO Eric Bolton in the third-quarter earnings press release. That should drive higher occupancy and rent growth in the coming years.
On top of that, the REIT has gone on the offensive as its competitors have pulled back on new developments because of the impact of higher interest rates. The REIT has eight apartment communities currently under development that it expects to complete over the next few years. It has also been actively buying recently built apartments from developers. Those investments will supply incremental earnings growth in the coming years.
Mid-America's headwinds have weighed on its stock price. It currently sits 33% below its peak from a few years ago. The drop has helped push its dividend yield up near 4%. With its headwinds fading, the REIT offers an attractive income stream and tremendous upside potential.
Capitalizing on robust demand
Invitation Homes is a residential REIT focused on single-family rental properties. The REIT has increased its dividend every year since it came public in 2017, including by 7.7% last December. It has benefited from rent growth and its expanding portfolio.
Demand for single-family rental homes has remained strong. The REIT's occupancy level has stayed high at 97%, while its same-store rents grew by 4.2% in the third quarter.
Invitation Homes has complimented the strength of its existing property portfolio by adding more properties to the mix. It purchased 1,591 wholly owned homes for $557 million and invested another $37 million into 108 joint venture homes during the first nine months of the year. The REIT also expanded its third-party management platform. Add the incremental income from new investments to its growing rental income, and the REIT's core FFO increased by 6.8% per share in the third quarter.
The REIT is in an excellent position to continue growing. Demand for single-family rental homes remains robust because of the high costs of buying a home. It's currently 33% more affordable to rent than buy in the 16 core markets where Invitation Homes owns properties. That's keeping occupancy levels high while enabling the REIT to steadily raise rents as leases expire.
Meanwhile, Invitation Homes has a strong balance sheet, giving it the flexibility to continue growing its portfolio. The company has agreed to buy about 2,700 homes from builders, giving it a pipeline of new property additions. On top of that, it can purchase single properties on the open market, acquire rental property portfolios from other investors, and expand its third-party management platform to drive additional growth.
Despite its continued growth, Invitation Homes stock has lost about 30% of its value from the peak of a few years ago. That has helped drive its dividend yield up to around 3.5%. With more growth ahead, this REIT looks like an attractive investment right now.
A compelling combination
Mid-America Apartment Communities and Invitation Homes offer attractive dividend yields because of their steady payment growth and decline in their stock prices. Meanwhile, both REITs have a lot more growth ahead, and they should be able to produce attractive total returns as they grow their earnings and dividends. That makes them great stocks to buy right now.
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Matt DiLallo has positions in Invitation Homes and Mid-America Apartment Communities. The Motley Fool has positions in and recommends Invitation Homes and Mid-America Apartment Communities. The Motley Fool has a disclosure policy.
